Key Factors
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Philip Morris Worldwide shares fell after the corporate’s second-quarter report, regardless of robust earnings and elevated EPS steering.
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The corporate is anticipating to see cigarette gross sales volumes decline within the second half.
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The actual story at Philip Morris is in regards to the continued robust development of Zyn and Iqos.
Philip Morris Worldwide (NYSE: PM) inventory has had a robust 2025 thus far, however the shares pulled again after the corporate reported its second-quarter outcomes. That dip left the replenish about 36% on the 12 months, as of this writing.
Is the latest slide a shopping for alternative or ought to buyers be working for the hills?
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Sturdy quantity development
The Zyn model stays the driving power behind Philip Morris’ strong gross sales development. Shipments of the favored nicotine pouches jumped 40% within the U.S. to 190 million cans in Q2, whereas retail gross sales volumes (offtake) grew by 26% within the quarter and by 36% in June.
Outdoors of the U.S. and Nordic international locations, Zyn shipments greater than doubled, and it’s now accessible in 44 markets. Total oral product shipments climbed 23.8% on a pouch foundation.
The corporate stated Zyn restocking within the U.S. is now successfully full. It continues to anticipate U.S. Zyn shipments to be between 800 million and 840 million cans for the 12 months.
Picture supply: Getty Photos
The remainder of Philip Morris’ smokeless portfolio additionally carried out nicely. Gross sales volumes of its heated tobacco models (HTUs), together with the Iqos system, jumped practically 9.2% to 38.8 billion models. The corporate stated in-market gross sales (to finish customers) jumped 11.4%. Iqos continues to carry out nicely in Japan and Europe and is seeing robust development in different main cities exterior its two principal markets.
Philip Morris additionally as soon as once more noticed cargo development greater than double for its e-vapor product, Veev, pushed by pod development in Europe. Veev is now in 42 markets and holds the No. 1 market share in six European markets.
Conventional cigarette volumes, in the meantime, fell by 1.5% to 155.2 billion models. Section natural income, nonetheless, grew 2% to $6 billion, and gross income for the class climbed 5% to $4 billion, as the corporate’s worth hikes greater than compensated for these quantity declines.
Total, natural income, which excludes forex results, acquisitions, and tendencies, rose 6.8% 12 months over 12 months to $10.1 billion. Adjusted earnings per share (EPS) climbed 20% to $1.91.
| Oral Merchandise (Zyn) | HTUs | Cigarettes | Smoke-Free | Complete | |
|---|---|---|---|---|---|
| Quantity development | 23.8% | 9.2% | (1.5%) | N/A | 1.2% |
| Natural income development | N/A | N/A | 2% | 14.5% | 6.8% |
HTUs = heated tobacco models.
Administration maintained its full-year steering for natural income whereas upping its adjusted EPS forecast. It continues to anticipate robust outcomes from each Zyn and Iqos, however expects a 3% to 4% decline in conventional cigarette volumes on account of ongoing points in Turkey and Indonesia.
The headwind in Turkey is said to produce chain points following a change in regulatory necessities, whereas in Indonesia, it is battling to maintain market share within the face of rising gross sales of illicit cigarettes. Nevertheless, it is nonetheless anticipating strong gross revenue development from its flamable tobacco enterprise on account of its pricing energy and price efficiencies.
| Metric | Prior Steering | Up to date Steering |
|---|---|---|
| Natural income development | 6% to eight% | 6% to eight% |
| Adjusted EPS | $7.01 to $7.14 | $7.43 to $7.56 |
| Adjusted EPS development* | 10.5% to 12.5% | $7.33 to $7.46 |
| Quantity development | 2% | 1% |
Knowledge supply: Philip Morris Worldwide. *Adjusted EPS development excludes forex trade impacts. EPS = earnings per share.
Ought to buyers purchase the dip?
Whereas buyers might have been disenchanted by Philip Morris’ forecast for steeper declines in cigarette gross sales volumes within the second half, about half of that is because of a brief situation round its Turkish provide chain. In the meantime, the massive motive to personal the inventory is its smoke-free portfolio, led by Zyn and Iqos.
Each merchandise proceed to display robust development and have higher unit economics than Philip Morris’ conventional cigarette enterprise. It is also increasing these merchandise to new markets, with early indicators of success. Importantly, the corporate is hoping that the FDA will approve the Iqos Iluma on the market within the U.S. later this 12 months, which might set it as much as enter this market now that it has reacquired its U.S. rights from Altria.
From a valuation perspective, the inventory bought cheaper when administration raised its EPS steering and its share worth fell. The inventory now trades at a ahead price-to-earnings (P/E) ratio of below 22, based mostly on the analyst consensus for 2025, with a PEG (worth/earnings-to-growth) ratio of below 0.35. Shares with optimistic PEG ratios beneath 1 are typically seen as undervalued.
Whereas on the present share worth, Philip Morris’ dividend has a pleasant 3.3% ahead yield, that is not as excessive a yield as different tobacco shares. Nevertheless, what it lacks in yield, it makes up for by being a singular development inventory in a defensive business. This can be a inventory you will wish to personal over the lengthy haul, and the dip within the inventory worth provides a pleasant shopping for alternative.
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Geoffrey Seiler has positions in Philip Morris Worldwide. The Motley Idiot recommends Philip Morris Worldwide. The Motley Idiot has a disclosure coverage.
