Philip Morris International Inc. (NYSE: PM)

PMI delivered outstanding financial performance in Q2 2025, with net revenues reaching $10.1 billion, an increase of 7.1% year-over-year (6.8% on an organic basis excluding foreign exchange and acquisitions/divestitures). This represents record quarterly net revenues for the company, driven by exceptional growth in the smoke-free business and pricing resilience in combustibles.

The smoke-free business continued its strong momentum, with shipment volumes up 11.8%, net revenues growing 15.2% (14.5% organically), and gross profit increasing 23.3% (21.5% organically). The smoke-free business now accounts for 41% of total net revenues, up 2.9 percentage points versus Q2 2024, and over 42% of total gross profit, up 3.8 percentage points year-over-year.

Operating income increased 7.8% to $3.7 billion, while adjusted operating income grew an impressive 16.1% to $4.2 billion. The adjusted operating income margin expanded by 3.3 percentage points to 41.9%, reflecting the superior profitability of the smoke-free business and effective cost management.

Reported diluted EPS grew 26.6% to $1.95, while adjusted diluted EPS increased 20.1% to $1.91. Excluding currency impacts, adjusted diluted EPS growth was 18.9%, demonstrating strong underlying earnings momentum. The robust EPS growth reflects both revenue expansion and margin improvement across the business.

The strong financial performance was broad-based across product categories and geographies, with particular strength in heat-not-burn products globally and nicotine pouches in the U.S. market. These results position PMI well to achieve its raised full-year guidance targets.

Heat-not-burn (HTU) products demonstrated strong performance with IQOS exceeding $3 billion in quarterly net revenues. HTU adjusted in-market sales (IMS) volume reaccelerated to 11.4% growth, driven by commercial initiatives and notable improvement in Europe as the impact of characterizing flavor bans subsides in affected markets.

In Japan, IQOS reached over 10 million legal-age consumers with HTU adjusted market share increasing 2.3pp to 31.7%. Both TEREA and SENTIA strengthened their #1 and #3 market positions despite increased competitive intensity. In Europe, adjusted IMS growth reaccelerated to 9.1%, with strong performance in Italy and broad-based growth across Germany, Greece, Romania, Bulgaria, and Spain.

Oral smoke-free products delivered exceptional growth with shipment volume increasing 23.8% in pouch equivalents (26.5% in cans). ZYN reaccelerated its U.S. offtake growth to approximately 36% in June and 26% in Q2 overall, reflecting improved in-store availability and consumer access to the full ZYN portfolio. Internationally, nicotine pouches more than doubled outside the U.S. and Nordics.

E-vapor products showed strong momentum with VEEV shipment volumes more than doubling, driven by European expansion. VEEV is now available in 42 markets and holds the #1 position in the closed pods segment in 6 European markets, including Greece and Italy. The recently launched VEEV inPrime innovation offers superior consumer experience and optimized pod cost structure.

The smoke-free business continues to expand its global reach, with products now available in 97 markets. Nearly half of these markets have at least two of PMI’s three flagship brands (IQOS, ZYN, and VEEV) available, including 20 markets with all three brands, demonstrating the company’s successful multicategory strategy.

Europe delivered strong performance with net revenues growing 7.3% organically. The region benefited from IQOS reacceleration as characterizing flavor ban impacts subside, with Italy showing particularly strong performance. Adjusted operating income grew 13.8% organically, reflecting improved volume/mix and effective pricing strategies.

South & Southeast Asia, CIS & Middle East Africa (SSEA, CIS & MEA) showed solid growth with organic net revenue growth of 4.9%. The region experienced broad-based HTU growth across markets, with adjusted IMS volume growing an estimated 19.8%. Operating income growth of 17.2% organically was driven by favorable pricing and higher volumes.

East Asia, Australia & PMI Global Travel Retail achieved 1.6% organic net revenue growth, primarily driven by Japan’s continued IQOS strength and travel retail recovery. Japan maintained its market leadership with IQOS reaching over 10 million legal-age consumers and strong market share gains.

Americas was the standout performer with 17.0% organic net revenue growth, driven primarily by exceptional ZYN performance in the U.S. The region achieved 26.9% organic adjusted operating income growth, reflecting the high profitability of the nicotine pouch business and successful market expansion initiatives.

Across all regions, PMI demonstrated its ability to drive both volume growth in smoke-free products and maintain pricing strength in combustibles. The geographic diversification provides resilience and multiple growth drivers across different markets and regulatory environments.

Despite the expected return to volume declines, PMI’s combustibles business demonstrated remarkable resilience with strong financial performance:

• Net Revenue Growth: 2.1% growth (2.0% organically) despite volume headwinds, driven by effective pricing strategies
• Gross Profit Performance: Robust 5.0% growth (4.8% organically), demonstrating pricing power and cost management
• Marlboro Leadership: Continued market share gains, achieving highest quarterly market share since the 2008 spin
• Overall Market Position: PMI’s cigarette category share remained broadly stable despite industry volume pressures

The combustibles business performance reflects PMI’s premium brand portfolio strength and effective commercial execution. Strong pricing discipline helped offset volume declines and unfavorable mix dynamics, while the Marlboro brand’s continued share gains demonstrate its enduring appeal and PMI’s commercial capabilities.

This resilient combustibles performance provides a strong financial foundation that supports continued investment in smoke-free product development and commercialization. The combination of smoke-free growth and combustibles resilience creates a balanced portfolio that maximizes value creation during the industry transformation.

Based on strong year-to-date performance, PMI raised its full-year 2025 guidance:

Raised Financial Guidance

• Reported diluted EPS: $7.24 – $7.37 (vs. $4.52 in 2024)
• Adjusted diluted EPS: $7.43 – $7.56 (13% – 15% growth vs. 2024)
• Adjusted diluted EPS excluding currency: $7.33 – $7.46 (11.5% – 13.5% growth)
• Q3 2025 adjusted diluted EPS: $2.08 – $2.13

Key Assumptions

• Total cigarette and smoke-free product shipment volume growth of around 1%
• Smoke-free product volume growth of 12% to 14%
• Cigarette volume declines of around 2% (revised from previous guidance)
• Net revenue growth of around 6% to 8% organically
• Organic operating income growth of 11% to 12.5%
• U.S. nicotine pouch shipment volume: 800 to 840 million cans

Investment and Capital Allocation

• Operating cash flow of approximately $11.5 billion
• Capital expenditures of around $1.6 billion (almost entirely for smoke-free business)
• Continued focus on net debt to adjusted EBITDA ratio improvement (targeting ~2x by end of 2026)
• Regular quarterly dividend of $1.35 per share (annualized $5.40)

The raised guidance reflects confidence in the smoke-free business momentum, combustibles resilience, and PMI’s ability to execute on its transformation strategy while maintaining strong profitability and cash generation.