8-K: Philip Morris International Reports Strong 2024 Results, Driven by Smoke-Free Products

Philip Morris International (PMI) announces robust 2024 financial results, fueled by growth in smoke-free products like IQOS and ZYN, with adjusted diluted EPS of $6.57, representing a 9.3% increase.

Summary

• Philip Morris International (PMI) reported its 2024 fourth-quarter and full-year results on February 6, 2025.
• The company's reported diluted EPS for 2024 was $4.52, or $6.01 before a Canada non-cash impairment of $1.49, compared to $5.02 in 2023.
• Adjusted diluted EPS reached $6.57, marking a 9.3% increase, and 15.6% on a currency-neutral basis.
• Smoke-free business net revenues increased by 14.2% (16.7% organically) for the full year, and gross profit increased by 18.7% (22.7% organically).
• In the fourth quarter, smoke-free business net revenue grew by 9.2% (9.0% organically) and gross profit by 15.1% (both reported and organically).
• The smoke-free business accounted for 40% of total net revenues and around 42% of gross profit.
• PMI estimates 38.6 million adult users of its smoke-free products, available in 95 markets.
• Full-year shipment volume for oral smoke-free products increased by nearly 28% in cans (nearly 25% in pouches or pouch equivalents).
• Fourth-quarter shipment volume for oral smoke-free products increased by 25% in cans (22% in pouches or pouch equivalents), driven by ZYN nicotine pouch growth in the U.S., where shipments reached nearly 165 million cans, representing growth of nearly 42% versus prior year.
• Combustibles net revenues grew by 4.0% (5.9% organically) for the full year and 6.0% (6.2% organically) in the fourth quarter, driven by strong pricing.
• The company declared a regular quarterly dividend of $1.35 per share, or an annualized $5.40 per share.
• PMI forecasts a full-year 2025 reported diluted EPS in the range of $6.55 to $6.68.
• Excluding adjustments, the forecast represents a projected increase of 7.2% to 9.1% versus adjusted diluted EPS of $6.57 in 2024.
• Also excluding an adverse currency impact of $0.22, the forecast represents a projected increase of 10.5% to 12.5% versus adjusted diluted EPS of $6.57 in 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong growth in key areas, particularly smoke-free products. While there are some challenges, the overall tone is optimistic and forward-looking.

Positives

• Strong growth in smoke-free products, particularly IQOS and ZYN, is driving overall performance.
• FDA authorization of ZYN nicotine pouches provides further validation of smoke-free products.
• The smoke-free business is becoming a significant portion of PMI's revenue and profit.
• IQOS is gaining market share in key regions like Japan and Europe.
• Oral smoke-free products are experiencing substantial volume growth.
• Combustibles business remains robust, driven by strong pricing.
• The company is committed to returning value to shareholders through dividends.

Negatives

• PMI recorded a non-cash impairment charge of $2.3 billion related to its investment in Rothmans, Benson & Hedges Inc. (RBH) in Canada, with an adverse impact on reported diluted EPS of $1.49.
• The company is facing adverse currency impacts, which are projected to continue in 2025.
• The estimated total market for cigarettes and HTUs in the Region was broadly stable (541.9 billion units), reflecting a 1.4% decrease for cigarettes and continued HTU growth.
• The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 1.9% to 185.1 billion units, primarily reflecting a decline for cigarettes.

Risks

• The company faces risks related to excise tax increases, marketing and regulatory restrictions, and health concerns related to tobacco and nicotine use.
• PMI's business is subject to intense competition and the effects of global and individual country economic, regulatory, and political developments.
• The company's future profitability may be adversely affected if it is unsuccessful in its attempts to introduce, commercialize, and grow smoke-free products.
• The company is subject to risks related to unfavorable currency exchange rates and currency devaluations.
• The company is subject to risks related to adverse changes in the cost, availability, and quality of tobacco and other agricultural products and raw materials, as well as components and materials for our electronic devices.

Future Outlook

PMI forecasts a full-year 2025 reported diluted EPS in the range of $6.55 to $6.68, representing a projected increase of 7.2% to 9.1% versus adjusted diluted EPS of $6.57 in 2024, excluding adjustments.

Management Comments

• '2024 was a remarkable year for PMI. We delivered very strong full-year results driven by the continued growth of IQOS and ZYN in addition to a robust combustibles performance,' said Jacek Olczak, Chief Executive Officer.
• With strong momentum across all categories, we are confident that our smoke-free transformation and unparalleled brand portfolio will continue to deliver excellent performance and create value for our shareholders in 2025 and for the long term.

Industry Context

PMI's focus on smoke-free products aligns with the broader industry trend of reducing harm from tobacco consumption. The company's investments in research and development and its acquisitions, such as Swedish Match, position it as a leader in this evolving market.

Comparison to Industry Standards

• British American Tobacco (BAT) and Imperial Brands are key competitors in the tobacco industry.
• PMI's growth in smoke-free products is comparable to BAT's efforts in the 'New Categories' segment, which includes vapor, tobacco heating products, and modern oral products.
• The FDA authorization of ZYN nicotine pouches gives PMI a competitive advantage in the U.S. market, similar to Swedish Match's success with General snus.

Stakeholder Impact

• Shareholders can expect continued dividends and potential for long-term value creation.
• Employees will be involved in the company's transformation towards smoke-free products.
• Customers will have access to a wider range of smoke-free alternatives.
• Suppliers will need to adapt to the changing product portfolio.
• Creditors should be reassured by the company's strong financial performance.

Next Steps

• PMI will continue to focus on growing its smoke-free business and expanding into wellness and healthcare areas.
• The company will monitor the CCAA proceedings in Canada and its impact on its investment in RBH.
• PMI will host a conference call on February 6, 2025, to discuss the results.

Key Dates

Keywords

Philip Morris International, PMI, smoke-free products, IQOS, ZYN, financial results, earnings, HTU, nicotine pouches, combustibles