Philip Morris International (PMI): A few factors to consider if you have an eye on this stock

Shares of Philip Morris International Inc. (NYSE: PMI) stayed in red territory on Thursday. The stock has dropped 3% over the past 12 months. Despite facing certain challenges, the tobacco giant has managed to deliver healthy growth and there is a bullish sentiment surrounding the stock. Here are a few factors to note if you have an eye on this one:

Revenue and profitability

Philip Morris generated revenues of $7.75 billion in the first quarter of 2022. Revenues grew 2.1% on a reported basis and 9% on an organic basis, which reflected total volume growth driven by strength in IQOS. Adjusted EPS for the quarter was down by $0.01 to $1.56.

The company’s margins during the quarter were impacted by higher device sales for increasing IQOS user acquisition, the growth of IQOS ILUMA, channel replenishment of IQOS device inventories and inflation in supply chain elements like energy, wages and direct materials.

For the second quarter of 2022, PMI expects pro forma adjusted EPS to range between $1.19-1.24. For the full year of 2022, adjusted EPS is expected to be $5.45-5.56.

IQOS

PMI is seeing strong performance from its IQOS business. IQOS devices accounted for approx. 6% of the $2.1 billion of RRP pro forma net revenues generated in Q1. Device volumes were up year-over-year thanks to the easing of supply constraints and strong performance of ILUMA in markets like Japan and Switzerland.

During the first quarter, the IQOS user base grew by more than 1 million, excluding Russia and Ukraine, to reach 17.9 million users. PMI estimates that 71% of total IQOS users outside Russia and Ukraine have switched to IQOS and stopped smoking. Along with strong progress in developed countries, the company is seeing encouraging growth for IQOS in low and middle income markets.

Swedish Match and the smoke-free market

Philip Morris has made an offer to acquire nicotine products company Swedish Match for $16 billion. This transaction is being viewed as a smart move for PMI as it provides significant expansion opportunity in the US smoke-free market.

Swedish Match owns the leading nicotine pouch brand ZYN, which would be a valuable addition to PMI’s portfolio. ZYN holds a 64% share in the nicotine pouch category. Its portfolio also includes another smoke-free product Scandinavian snus. Combining these with the e-vapor product IQOS VEEV would give PMI brands across all three major smoke-free platforms. PMI aims to reach more than 50% smoke-free net revenues by 2025 as compared to 30% in Q1 2022.

As per the data from PMI’s filings, the total US nicotine industry is the world’s largest, excluding China, with retail value representing around 30% of the international market. The US smoke-free market is growing strongly and comprised around 23% of total nicotine volume in 2021. PMI expects the retail value of the nicotine pouch category to grow by a CAGR of 30-40% over the next five years.

Click here to read the full transcript of Philip Morris’ Q1 2022 earnings conference call