Philip Morris raises outlook on back of smoke-free success

Philip Morris International (PMI) has on Tuesday announced an upward revision of its full-year guidance, following robust financial results for the second quarter and first half of 2024, driven by the continued success of its smoke-free products.

The smoke-free segment accounted for 38.1 per cent of PMI's total net revenues in the second quarter, marking a 2.7 percentage point increase compared to the same quarter last year. The number of adult users of PMI's smoke-free products reached 36.5 million, an increase of 3.2 million since December 2023.

The segment saw a net revenue increase of 13.6 per cent (18.3 per cent organically) and a gross profit rise of 15.6 per cent (22.2 per cent organically).

The IQOS user base grew to 30.8 million by the end of the quarter, with approximately 22.1 million users having fully switched to IQOS and stopped smoking, the company claimed.

IQOS's market share for heated tobacco units (HTU) in Japan exceeded 30 per cent for the first time in June, with TEREA and SENTIA becoming the top nicotine brands in the country.

The company expects a second half acceleration in HTU sales to deliver around 13 per cent growth for the full year, but this assumes no volumes in Taiwan and a slightly greater impact from the EU flavour ban than previously assumed.

Shipment volumes of oral smoke-free products increased by 23.5 per cent, driven by the growth of ZYN nicotine pouches in the US, where shipments rose by 50.3 per cent compared to the previous year. Internationally, nicotine pouch volumes grew by over 50 per cent, with notable success in new markets like Pakistan.

Net revenues from combustibles grew by 1.2 per cent (4.8 per cent organically), with a recovery in gross margin after seven consecutive quarters of contraction, driven by high single-digit pricing.

PMI's total cigarette and HTU shipment volume rose by 2.5 per cent in the second quarter, with HTU shipments up by 13.1 per cent and cigarette shipments up by 0.4 per cent. Total oral product shipment volumes increased by 23.5 per cent, reflecting the growth in nicotine pouches. Adjusted in-market sales for HTUs grew by 10.2 per cent, with significant gains in Japan and Europe.

Net revenues increased by 9.6 per cent on an organic basis, primarily due to favorable pricing and higher smoke-free products volume. Adjusted operating income rose by 12.5 per cent, driven by pricing variance and volume/mix improvements, despite higher marketing, administration, and research costs.

For the first half of 2024, PMI's total cigarette and HTU shipment volume increased by 2.8 per cent, with HTU shipments rising by 16.8 per cent. Total oral product shipment volume grew by 31.2 per cent. Adjusted in-market sales for HTUs increased by 11.4 per cent, with substantial growth in Japan and Europe.

Net revenues increased by 10.2 per cent on an organic basis, driven by higher combustible tobacco pricing and smoke-free products volume. Adjusted operating income rose by 17.0 per cent, offset by higher marketing, administration, and research costs, and increased manufacturing costs due to inflationary pressures.

“The excellent momentum of our smoke-free business continued with an outstanding second-quarter and first-half performance,” said Jacek Olczak, PMI chief executive.

“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.”

In the UK, the estimated total market for cigarettes and HTUs decreased by 15.4 per cent in the second quarter and 13.3 per cent in the first half.