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By Brian Nelson, CFA
On April 22, Philip Morris (PM) reported better than expected first quarter results that beat the consensus top- and bottom-line estimates. Net revenues increased 9.1% (2.7% organically), to $10.1 billion, with both its smoke-free and combustibles businesses contributing to the top line advance. Smoke-free revenue was up 12.4% (5.2% organically), while combustibles revenue was up 6.7% (0.9% organically). Philip Morris’ smoke-free business now accounts for 43% of total net revenues.
Management had the following to say about the results:
Our performance exceeded our expectations in the first quarter, with an outstanding delivery from IQOS driving very good growth for the group against a strong prior-year comparison.
Building on excellent broad-based momentum in the international smoke-free business and 16% adjusted diluted EPS growth in Q1, we are well positioned to continue delivering best-in-class performance in 2026.
In the quarter, gross profit increased by 10.1% (3.8% organically) thanks to strong pricing, operating leverage and smoke-free products mix benefits. The company’s performance continues to be driven by its international smoke-free business with net revenue growth of 24.7% (15.8% organically) fueled by 11.9% volume growth and gross profit growth of 28.6% (19.4% organically), with IQOS remaining the primary growth engine.
Looking to 2026, management expects net revenue growth of 5%-7% and adjusted diluted earnings per share, excluding currency, to be in the range of $8.11-$8.26, as compared to $7.54 last year. Operating cash flow is targeted around $13.5 billion during the year, with capital spending in the range of $1.4-$1.6 billion, resulting in considerable free cash flow. Management targets further improvement in its net debt to adjusted EBITDA ratio, expecting 2.0x by the end of 2026. Shares yield 3.6% at the time of this writing.
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Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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