Smoke-Free Business Powers PMI’s Growth and Margin Expansion
Philip Morris International (PMI) delivered a strong third quarter in 2025, marked by accelerating performance in its smoke-free product (SFP) segment. Smoke-free products—now available in 100 markets—accounted for 41% of PMI’s net revenues and more than 42% of gross profit, with both shares climbing over 2 percentage points compared to the same period last year.
Smoke-Free Momentum: Shipment and Revenue Growth Stand Out
The company’s smoke-free portfolio posted double-digit gains across key metrics:
- Smoke-free shipment volume surged 16.6%, outpacing industry trends.
- Net revenues from smoke-free products rose 17.7% (13.9% organically).
- Gross profit for the segment climbed 19.5% (14.8% organically).
- Heated tobacco unit (HTU) volumes increased 15.5% year-on-year.
- Oral SFP shipment volumes grew 16.9%, driven largely by ZYN nicotine pouches, which more than doubled outside the U.S. and surged 37% within the U.S.
- E-vapor shipment volume nearly doubled, up 91%, with VEEV’s top-three position in 15 markets underscoring expansion momentum.
| Segment | Shipment Volume Change | Net Revenue Change | Gross Profit Change |
|---|---|---|---|
| Smoke-Free Products | +16.6% | +17.7% | +19.5% |
| HTU | +15.5% | N/A | N/A |
| Oral SFP | +16.9% | N/A | N/A |
| E-vapor | +91.0% | N/A | N/A |
Profitability Hits Record Levels, Margins Improve Further
PMI reported the highest ever quarterly adjusted diluted EPS at $2.24, a 17.3% increase from Q3 2024. Gross profit margin climbed to 68.3%, fueled by robust SFP sales, margin expansion, and higher prices in combustibles. Operating income margin improved 1.2 percentage points to 43.1% in the third quarter, continuing a positive trend.
| Q3 2025 | Change vs Q3 2024 | YTD 2025 | Change vs YTD 2024 |
|---|---|---|---|
| Net Revenues ($bn) | $10.8 (+9.4%) | $30.3 (+7.5%) | $2.1bn (+7.5%) |
| Gross Profit ($bn) | $7.4 (+12.4%) | $20.5 (+12.1%) | $2.2bn (+12.1%) |
| Adj. Diluted EPS | $2.24 (+17.3%) | $5.83 (+16.4%) | N/A |
Outlook Raised as Smoke-Free Transition Gains Traction
Confident in momentum, PMI raised its full-year 2025 adjusted diluted EPS guidance to $7.46–$7.56 (13.5%–15.1% growth from 2024), with a forecasted 12%–13.5% increase on a currency-neutral basis. This upgrade is driven by a 12%–14% projected rise in SFP shipment volume, counterbalancing a roughly 2% cigarette volume decline. Overall, PMI expects net revenue to grow 6%–8% organically and organic operating income to climb 10%–11.5% for the full year.
| 2025 Full-Year Forecast | Guidance | 2024 Comparison | Growth Rate |
|---|---|---|---|
| Adjusted Diluted EPS | $7.46–$7.56 | $6.57 | +13.5% to +15.1% |
| Adj. Diluted EPS ex-Currency | $7.36–$7.46 | $6.57 | +12.0% to +13.5% |
Regional Review: SFP Gains and Profit Improvement Widespread
- Europe: HTU market share grew by 1.2 percentage points; SFP shipment volumes up 10.5%; adjusted operating income rose 9.1% organically.
- SSEA, CIS & MEA: SFP shipments jumped 23.3%; HTU sales up 13.3% regionwide; adjusted operating income soared 17.9% organically.
- Americas: ZYN’s return drove oral SFP volume growth of 29.1% (to 238m cans); SFP segment volumes climbed 26.9%; temporary revenue headwinds due to promotional investments.
Key Takeaway: PMI’s Strategic Shift Drives Consistent Earnings Upgrades
Philip Morris International’s transformation to a smoke-free business is well underway and ahead of plan. Surging volumes and profitability in non-combustibles—now accounting for over 40% of group sales—are driving broad-based gains in margins, market share, and EPS outlook. Investors should monitor further adoption trends, U.S. regulatory updates, and execution on PMI’s planned reporting and organizational changes set for 2026, which will more clearly reflect the company’s evolving growth drivers.
While combustible products remain profitable, all major performance indicators are increasingly tied to the scale and reach of PMI’s smoke-free platforms. This is a business rapidly rewriting its fundamentals for the years ahead.
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