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Philip Morris International’s Earnings Preview: Smoke-Free Growth Fuels Momentum

Charles HayesTuesday, Apr 22, 2025 9:34 am ET

17min read

Philip Morris International (PM) is set to report its first-quarter 2025 earnings on April 23, a critical update for investors tracking the company’s transition from traditional tobacco to smoke-free products. Analysts anticipate strong results driven by surging demand for its IQOS ILUMA, ZYN nicotine pouches, and other reduced-risk alternatives, which now account for 40% of total revenue. Here’s what investors should watch for in the earnings call—and why the stock’s 69% surge over the past year may have further to run.

Revenue and EPS Outlook: A Story of Diversification

Analysts project Q1 revenue of $9.14 billion, a 4% year-over-year increase, with diluted EPS expected to hit $1.61—up 7.3% from last year. The consensus has held steady over the past month, reflecting confidence in PMI’s ability to navigate currency headwinds (a 4-cent drag on EPS due to the Swiss franc’s strength) and regulatory pressures. Management’s guidance of $1.58–$1.63 per share suggests the company is on track to exceed the low end of expectations, buoyed by strong pricing power and volume growth in smoke-free categories.

Smoke-Free Products Lead the Charge

The star of PMI’s portfolio remains its smoke-free segment, which is forecast to grow 8.5% YoY to $3.58 billion in Q1. IQOS ILUMA’s global expansion, particularly in Europe and the Americas, has been a key driver, while ZYN nicotine pouches continue to gain traction in the U.S. market. Combustible tobacco revenue, by contrast, is expected to decline 2.7% to $5.26 billion as regulatory hurdles and health concerns push consumers toward alternatives.

Geographically, Europe is the company’s largest market, with revenue up 4% to $3.50 billion, while the Americas saw an 8.3% jump to $1.08 billion. Emerging markets like Southeast Asia and Africa showed slower growth (0.9%), reflecting economic challenges, though PMI’s focus on higher-margin products has softened the blow.

Key Drivers and Risks

Innovation and Scale: PMI’s investment in R&D and distribution networks has allowed it to dominate the smoke-free space. Its 179.1 billion total unit shipments (including 1.6% growth in heated tobacco units) highlight the shift from traditional cigarettes.
Pricing Power: Steady price hikes have offset volume declines in combustible products, with smokers’ inelastic demand supporting margins.
Currency and Costs: While the Swiss franc’s strength poses a short-term headwind, PMI’s cost-saving initiatives—such as operational efficiencies—are improving profitability.

Risks include rising competition from startups in the nicotine alternatives space, stricter tobacco regulations in key markets, and macroeconomic pressures in developing regions.

Analyst Sentiment and Valuation

PM’s stock now trades at 22.6x fiscal 2025 EPS estimates, a premium reflecting its leadership in smoke-free innovation. Analysts at Citigroup and JPMorgan recently raised their price targets to $180 and $165, respectively, while 8 of 12 analysts rate the stock a “Strong Buy.” The average target of $151.60 suggests further upside, though valuation skepticism could emerge if growth slows.

Conclusion: A Long-Term Play on Reduced-Risk Alternatives

Philip Morris’s Q1 results will likely reinforce its position as a leader in the $15 billion smoke-free market, with FY2025 EPS estimates of $7.23 and FY2026 projections of $8.03 signaling sustained growth. While near-term risks like currency fluctuations and regulatory hurdles remain, the company’s strategic focus on innovation, geographic diversification, and margin management positions it to capitalize on secular trends.

Investors should also note that PM’s dividend yield of 3.8%—backed by a 10% EPS growth trajectory—adds a defensive element to its appeal. With smoke-free products now contributing 40% of revenue and IQOS ILUMA’s adoption accelerating, PMI’s transition is no longer a “what if” scenario but a reality driving shareholder returns. For long-term investors, the stock’s 69% year-to-date gain may just be the beginning.

In a sector where traditional tobacco faces existential threats, PM’s ability to pivot to reduced-risk alternatives has turned it into one of the consumer staples sector’s most compelling growth stories. The earnings report on April 23 will be a key test of whether that narrative holds—or accelerates.

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