Philip Morris Raises 2024 Guidance, Shares Catapult to All-Time Highs

Image: Shares of Philip Morris catapult to all-time highs.

By Brian Nelson, CFA

On October 22, Philip Morris (PM) reported better than expected third quarter results that showed a beat on both the top and bottom lines. Reported net revenue advanced 8.4% on 11.6% organic growth in the quarter. Gross profit increased 9.5% on reported basis and 13% organically. Operating income was up 8.4% on a reported basis and 13.8% organically versus the prior year’s quarter. Adjusted diluted earnings per share, excluding currency, came in 18% higher versus last year’s quarter, to $1.97 per share.

Management was pleased with the performance:

In the third quarter, we delivered exceptionally strong performance, with record quarterly net revenues and earnings per share. This reflects excellent momentum across all regions and categories, with a reacceleration in IQOS adjusted in-market sales growth, strong ZYN volumes, and resilient combustible performance. As a result of our strong year-to-date delivery, we are raising our full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%, excluding currency.

In the third quarter, total cigarettes and HTU shipment volume was up 2.6% versus the prior-year period. Nicotine pouch can sales increased a whopping 43.6%, with total oral smoke-free products increasing 24.7% in cans on a year-over-year basis in the quarter. Philip Morris’ smoke-free business continues to fire on all cylinders, accounting for 38% of its total net revenue and 40% of gross profit, up 1.9 percentage points and 2.2 percentage points versus the third quarter last year, respectively.

Net revenue in its smoke-free business increased 14.2% in the quarter (16.8% organically), while gross profit increased 15.9% (20.2 organically). ZYN nicotine pouch growth in the U.S. was 41.4%, reaching 149.1 million cans, as supply constraints have started to lighten up. Outside the U.S., its nicotine pouch volume in cans grew by almost 70% thanks to strength in Pakistan and South Africa.

On the heels of strength witnessed in the third quarter, Philip Morris raised its outlook for adjusted diluted earnings per share, excluding currency, to $6.85-$6.91 (was $6.67-$6.79 per share), reflecting 14%-15% growth, up from prior expectations of 11%-13%. We like the earnings momentum behind Philip Morris’ business, and the company has a big winner on its hands with ZYN nicotine pouches. The high end of our fair value estimate range for Philip Morris stands at $134 per share. Shares yield 4.5%.

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