Can Smoke-Free Products Power Philip Morris' Next Decade of Growth?

Philip Morris International (PM) is aggressively shifting towards smoke-free products, which now account for 44% of gross profit, driven by strong growth in IQOS, ZYN, and VEEV. Specifically, ZYN's U.S. shipments surged 53% year-over-year, leading to an increased full-year guidance of 800-840 million cans, while smoke-free gross profit rose 33.1% with margins exceeding 70%; PM's competitors Altria and British American Tobacco are also expanding their smoke-free portfolios.

Analysis

Philip Morris International (PM) is demonstrating significant progress in its strategic pivot to smoke-free products, which constituted 44% of its total gross profit in the first quarter of 2025. This transformation is underscored by a 33.1% year-over-year increase in smoke-free gross profit, achieving margins exceeding 70%, and a 20.4% rise in net revenues for this segment. Key drivers include the IQOS heat-not-burn device, which saw 9.4% HTU-adjusted IMS growth despite European regulatory challenges, and ZYN nicotine pouches, whose U.S. shipments soared 53% year-over-year to 202 million cans, prompting an upward revision of full-year U.S. shipment guidance to 800-840 million cans. VEEV e-vapor products also more than doubled shipment volumes. PM's smoke-free offerings are now available in 95 markets, serving nearly 38.6 million adult users. While competitors like Altria Group (MO) and British American Tobacco (BTI) are also expanding their smoke-free portfolios—Altria's on! shipments grew 18% in Q1 2025, driving a 0.5% revenue increase in its Oral Tobacco Products segment, and BAT's New Category revenues rose 2.5% in 2024 with 29.1 million smokeless users—PM's current momentum appears robust. PM's shares have outperformed the industry, rallying 51.4% year-to-date versus the industry's 38.5%, though it trades at a premium forward price-to-earnings ratio of 23.27X compared to the industry average of 15.46X. Consensus estimates project PM's earnings growth at 13.7% for 2025 and 11.7% for 2026, with the stock currently holding a Zacks Rank #1 (Strong Buy) as per the article.

Key Decisions for Investors

• Investors should assess Philip Morris's accelerated growth in its smoke-free division, particularly the exceptional U.S. performance of ZYN and upwardly revised shipment guidance, as a primary driver for potential continued outperformance.
• Carefully weigh the company's premium valuation (forward P/E of 23.27X) against its strong execution, high-margin smoke-free products, robust earnings growth forecasts (13.7% in 2025, 11.7% in 2026), and significant market penetration in the reduced-risk category.
• Monitor the competitive landscape, including Altria's and British American Tobacco's advancements in smoke-free alternatives, and any evolving regulatory frameworks, while acknowledging PM's current strong positioning and positive analyst outlook highlighted by its Zacks Rank #1 (Strong Buy) status.