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By Brian Nelson, CFA
Philip Morris (PM) recently reported fourth quarter results that were mixed with revenue missing the consensus forecast, but non-GAAP earnings per share coming in-line with estimates. In the fourth quarter, net revenues increased 6.8% led by a 12% increase in its smoke-free business. Organic growth was 3.7%. Gross profit advanced 5.1% on an organic basis, while operating income increased 4.5% on an organic basis. In the quarter, adjusted diluted earnings per share, excluding currency, came in at $1.69, up 9% year-over-year. For the full year 2025, its smoke-free business accounted for 41.5% of its total net revenues and nearly 43% of total gross profit.
Management had the following to say about the results:
We achieved another remarkable year of results in 2025, with a fifth consecutive year of volume growth, net revenues surpassing $40 billion, including close to $17 billion from our smoke-free business, and very good operating margin expansion.
With excellent results in 2024 and 2025, we have delivered our three-year CAGR targets on operating income and EPS in just two years. With another strong performance expected in 2026, we are on track to outperform our 2024-2026 growth algorithm. This again demonstrates our ability to create sustainable value for our shareholders as we renew our growth targets for 2026-2028.
Looking to 2026, management expects net revenue growth of 5%-7% and organic operating income growth of 7%-9%. Reported diluted earnings per share is forecast to be $7.87-$8.02 per share compared to $7.26 per share in 2025. Adjusted diluted earnings per share, excluding currency, is targeted in the range of $8.11-$8.26 versus $7.54 in 2025, reflecting growth of 7.5%-9.5%. Operating cash flow is targeted at about $13.5 billion, with capital expenditures of $1.4-$1.6 billion, resulting in expectations of $12 billion in free cash flow for the year at the midpoint. Philip Morris expects further improvement in its net debt to adjusted EBITDA ratio at the end of 2026.
Looking to its growth targets for 2026-2028, management expects net revenues to grow between 6%-8% annually on an organic basis, with smoke-free product volume growth in the high single-digit to low-teens driving overall total shipment volume growth. On an annual basis, operating income is targeted to grow 8%-10% on an organic basis, while adjusted diluted earnings per share growth is expected to be between 9%-11%, excluding currency. We continue to like Philip Morris’ growth outlook and the prospects of its smoke-free products portfolio. Shares yield 3.2% 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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