Philip Morris (PM): A look at how the tobacco giant fared in the third quarter

Shares of Philip Morris International Inc. (NYSE: PM) were up over 2% on Friday. The stock has gained 7% over the past 12 months. The company delivered mixed results for the third quarter of 2023, as earnings surpassed projections but revenue fell short of estimates.

Revenue increased nearly 14% year-over-year to $9.1 billion on a reported basis while on an organic basis, revenues grew 9.3%. The top line growth was driven by total cigarette and HTU shipment volume growth and combustible tobacco pricing of 9%. Adjusted EPS rose 20% to $1.67. The bottom line growth was driven by growth in adjusted operating income and strong gains from the Swedish Match business.

Smoke-free products

Philip Morris’ strong quarterly performance was driven mainly by its smoke-free products. Smoke-free products delivered organic revenue growth of 16.5% in the third quarter and comprised over 36% of total revenues for the period.

In Q3, heated tobacco units (HTU) shipment volumes grew 18% to reach 32.5 billion units, driven by strong performance in Europe and Japan. Shipment volumes for oral nicotine grew 19% in the quarter.

The momentum in smoke-free products is led by IQOS and ZYN. As of September 30, there are an estimated 27.4 million IQOS users, which reflects an increase of 3.7 million users from a year ago. The company expects to see a meaningful pickup in user growth in the fourth quarter.

The IQOS ILUMA continues to gain share and in the third quarter, the company launched it in four markets, bringing its total number of markets to 27. PMI aims to make ILUMA available in around 50 markets by the end of the year.

ZYN nicotine pouches saw volumes grow by 66% in the US during the third quarter. Category volume share grew to 70.8%, reflecting a YoY increase of 4.7 points. Retail value share stands at around 76%. Based on this strong performance, the company raised its full-year 2023 forecast for nicotine pouch shipment volume to 390-410 million cans from the previous range of 370-400 million cans.

Outlook

For the full year of 2023, Philip Morris expects total cigarette and HTU shipment volume growth of 1.0-1.5%. Revenue is expected to grow 8% on an organic basis. Reported EPS is estimated to range between $4.95-4.98 while adjusted EPS is projected to be $6.05-6.08.