Philip Morris Puts Up Excellent Second Quarter Results, Raises 2024 Guidance

Image: Philip Morris’ stock has done quite well over the past few months.

By Brian Nelson, CFA

On July 23, Philip Morris (PM) reported excellent second quarter results with both revenue and non-GAAP earnings per share coming in better than expectations. Net revenue advanced 5.6% on a reported basis and 9.6% organically. Adjusted operating income increased 3.5% on a reported basis or 12.5% excluding currency and acquisitions. Its adjusted operating income margin increased 1.1 percentage points excluding currency and acquisitions, while adjusted diluted earnings per share increased 10.6%, excluding currency.

Management’s commentary was upbeat:

The excellent momentum of our smoke-free business continued with an outstanding second-quarter and first-half performance. The powerful combination of excellent underlying performance and proactive measures across all categories enabled our business to outperform once again, and we are on track for a strong 2024. As a result, we are raising our full-year guidance, despite currency headwinds.

Philip Morris’ smoke free business now accounts for 38.1% of its total revenue, up 2.7 percentage points from the same period a year ago. Net revenues of its smoke free business increased 13.6% in the quarter (18.3% organically), while gross profit increased 15.6% (22.2% organically). One of the key drivers behind Phillip Morris’ strength is its ZYN nicotine pouch growth, where shipments reached 135.1 million cans in the second quarter, up more than 50% from the prior year, despite supply constraints.

Looking forward to all of 2024, management is targeting adjusted diluted earnings per share in the range of $6.33-$6.45 (was $6.19-$6.31), up 5.3%-7.3% on a year-over-year basis, and adjusted diluted earnings per share, excluding currency in the range of $6.67-$6.79, up 11%-13% on a year over year basis (was 9%-11%). Net revenue growth is expected in the range of 7.5%-9% on an organic basis for the year (was 7%-8.5%), while organic operating income growth is targeted in the range of 11%-13% (was 10%-12%). For the year, free cash flow is expected in the range of $9.6-$9.7 billion (was $8.8-$9.8 billion), which includes further investments to expand ZYN capacity in the U.S.

All told, Philip Morris put up excellent second quarter results showcasing strong organic performance across key financial measures. The company continues to have traction with its nicotine pouch product ZYN, with impressive growth rates attained despite supply constraints. The company raised its 2024 guidance for revenue, adjusted operating income and adjusted earnings, and we continue to like the firm’s long-term transition to becoming a smoke-free company. Shares of Philip Morris yield 4.9% at the time of this writing.