A pioneer in so-called "next-generation" smokeless tobacco products, Philip Morris is well ahead of its competitors, with this category now accounting for 41% of its consolidated revenue, thanks in part to its IQOS heated tobacco system, Veev vapes, and Zyn oral tobacco products, inherited from the acquisition of Swedish Match and very popular in North America.
In the first nine months of the year, sales in the smokeless segment grew by a further 16%, and gross profit by 23.3%. Sales in the combustible segment grew by 2.2%, and gross profit by 5.1%. As a result, consolidated operating profit reached $11.5bn over nine months, compared with $10.1bn in the same period last year.
Against a backdrop of continuing structural volume declines this quarter, Philip Morris continues to successfully raise prices and gain market share. With an extremely strong financial position to boot, its situation is therefore in every respect preferable to that of its peers.
Analysts agree on free cash flow of $10.3bn in 2025—our analysts would not be surprised if this estimate were exceeded—and $13bn the following year, which seems more realistic. The market capitalization therefore represents a multiple of 24x and 19x expected profits in 2025 and 2026.
Philip Morris' success continues to earn it a clear premium over its direct competitor British American Tobacco. It too recently emerged from a long period of stock market lethargy, although its operating profit has declined significantly over the past five years, while Philip Morris' has increased in the meantime, and its new-generation product range does not have the same appeal.
Last year, MarketScreener revealed that, according to sources close to the group and its advisors, the group was preparing to spin off its combustible products business by 2030; however, this timeline could be accelerated. A transaction of this kind would significantly enhance Philip Morris' ESG profile, leaving only the growth segment within its fold.
