Can Smoke-Free Products Power Philip Morris' Next Decade of Growth?

Philip Morris International Inc. PM is rapidly transforming its business model to align with the global shift toward reduced-risk products. In the first quarter of 2025, smoke-free products accounted for 44% of the company’s total gross profit — an impressive milestone that reflects its serious push to become a majority smoke-free firm.

At the heart of Philip Morris’ transformation is its multi-category strategy, led by IQOS, ZYN and VEEV. IQOS, a scientifically backed heat-not-burn device, continues to gain traction globally, delivering 9.4% HTU-adjusted IMS growth in the first quarter despite regulatory headwinds in Europe. Meanwhile, ZYN's performance in the United States has been exceptional, with shipments up 53% year over year to 202 million cans. PMI has even raised its full-year U.S. shipment forecast to 800-840 million cans, supported by accelerated production at its Owensboro facility and a second plant underway in Colorado.

VEEV, PM’s entry in the e-vapor space, also saw shipment volumes more than double in the quarter, benefiting from expanding distribution in Europe. Together, these product categories drove a 20.4% rise in net revenues and a remarkable 33.1% increase in gross profit for the smoke-free segment, with gross margins now exceeding 70%.

With products available in 95 markets and almost 38.6 million adult users globally, PM’s smoke-free vision is materializing. Backed by scientific innovation, strategic partnerships and manufacturing investments, the company is on a clear path to achieving a majority smoke-free future.

PM’s Competition in the Smoke-Free Category

Altria Group, Inc. MO and British American Tobacco p.l.c. BTI are the key tobacco companies competing with Philip Morris in the smoke-free category.

Altria, the company behind Marlboro in the United States, stands at a pivotal moment in its history. With smoking rates in long-term decline and nicotine preferences rapidly shifting, it is building a smoke-free portfolio, focusing on modern oral nicotine and vapor products. Through its subsidiary Helix Innovations, Altria owns 100% of on!, a tobacco-derived nicotine pouch that is gaining traction with U.S. consumers. In the first quarter of 2025, shipment volumes for on! grew 18% year over year. Altria believes that Helix’s ability to grow both volume and market share despite higher retail prices highlights on!'s strengthening brand equity and consumer loyalty. This growth helped drive a modest but positive performance in Altria’s Oral Tobacco Products segment, which reported $654 million in net revenues in the first quarter, up 0.5% from the prior year.

British American Tobacco, long rooted in its heritage as a leading cigarette manufacturer, is actively transforming its business to align with the evolving tobacco and nicotine landscape. With a clear purpose to create a better tomorrow by building a smokeless world, the company is focused on helping smokers transition from traditional cigarettes to reduced-risk alternatives. As part of this vision, British American Tobacco aims to reach 50 million consumers of its smokeless products by 2030 and generate at least 50% of its revenues from these products by 2035. In 2024, the company made solid progress, with New Category revenues rising 2.5% and a total of 29.1 million adult consumers using its smokeless offerings. British American Tobacco’s multi-category portfolio — featuring Vuse (vapor), glo (heated products) and Velo (modern oral nicotine) — has already delivered over £3 billion in revenue within a decade.

PM’s Price Performance, Valuation and Estimates

Shares of Philip Morris have rallied 51.4% year to date compared with the industry’s growth of 38.5%.

From a valuation standpoint, PM trades at a forward price-to-earnings ratio of 23.27X, above the industry’s average of 15.46X.

The Zacks Consensus Estimate for PM’s 2025 earnings implies a year-over-year growth of 13.7%, whereas its 2026 earnings estimate suggests a year-over-year uptick of 11.7%. The estimates for 2025 and 2026 have remained unchanged in the past 30 days.

PM stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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