Philip Morris Posts Record Revenue as Pricing Lifts Growth
Adjusted operating margin widened 0.7 percentage point to 42.6% in the second quarter.
Philip Morris International (PM), the tobacco company, posted record second-quarter net revenue as stronger pricing accelerated growth despite slowing momentum in several smoke-free categories.
Revenue growth accelerated to 10.4% from 9.1% in the first quarter, while organic growth quickened to 7.6% from 2.7%. Gross profit rose 11.5%, and operating income increased 22.0%, with both measures growing faster than in the preceding quarter.
Net revenue reached $11.2 billion. Adjusted diluted earnings rose 15.2% to $2.20 a share, with growth excluding currency accelerating to 13.6%. Reported diluted earnings fell 7.7% to $1.80 a share after a $511 million noncash impairment of Philip Morris’s RBH equity investment reduced earnings by $0.33 a share.
Pricing supplied most of the quarter’s revenue increase, adding $689 million, compared with $81 million from volume, mix and other factors. International combustibles benefited from 10.0% pricing and 1.1% cigarette-volume growth, producing organic revenue growth of 6.4% even as geographic mix weighed on the business.
Smoke-free products accounted for about 42% of revenue, up 0.5 percentage point from a year earlier and down from 43% in the first quarter. International smoke-free shipments grew 8.0%, easing from 11.9%, while organic revenue growth slowed to 11.8% from 15.8%. Smoke-free availability expanded to 109 markets.
IQOS adjusted in-market sales rose 5.1%, less than half the first quarter’s 10.9% increase. Japan sales fell 3.4% as pantry-loading reversed following an April excise-driven price increase, while growth outside Europe and Japan moderated to 14.4%. Europe’s growth edged down to 5.1%.
The U.S. business improved sequentially, though revenue declined 0.7% from a year earlier and adjusted gross margin contracted 6.0 percentage points to 65.4%. U.S. ZYN shipments rose 1.8% to 2.9 billion pouches, while consumer offtake was flat to slightly higher. Philip Morris introduced ZYN ULTRA in June and plans two additional dry variants for the third quarter.
Philip Morris now forecasts adjusted earnings of $8.26 to $8.41 a share, including a currency benefit of $0.15 a share, down from its previous estimate of $0.20. The company maintained its currency-neutral earnings-growth outlook of 7.5% to 9.5% and raised its shipment assumptions, expecting total cigarette and smoke-free volume to be broadly stable to slightly higher and cigarette volume to decline 2% to 3%.