Philip Morris International (PM -0.10%), a global tobacco and nicotine products company, reported its Q2 2025 results on July 22, 2025. The standout news was robust adjusted earnings per share—$1.91 versus a $1.86 estimate—surpassing forecasts by 2.7%. However, GAAP revenue of $10.1 billion fell 2.1% short of expectations. Despite the revenue shortfall, the company continued to advance its smoke-free strategy, raised its outlook for full-year 2025 adjusted EPS. Overall, the period showed strong profit progress, sustained momentum in new category products, and steady cash generation.

Company Overview and Strategic Direction

Philip Morris International is one of the world’s largest producers of tobacco and nicotine products. Its business spans both traditional cigarettes and a growing portfolio of smoke-free alternatives, serving about 170 markets. The company’s well-known brands include Marlboro, Parliament, and the expanding IQOS, ZYN, and VEEV product lines.

In recent years, the company has focused on shifting its business from combustible (traditional) cigarettes to smoke-free products. These include heated tobacco (heat-not-burn) devices like IQOS, oral nicotine pouches such as ZYN, and electronic vapor offerings under the VEEV brand. Success factors for its ongoing transformation center on innovation, regulatory clearance, supply chain execution, and effective brand positioning in new markets. Regulatory engagement also remains critical given substantial approval requirements for new product types worldwide.

Quarter in Detail: Progress, Risks, and Notable Developments

During the quarter, smoke-free products accounted for 41% of net revenue, up 2.9 percentage points year-over-year. Gross profit from these products exceeded 42% of the company’s total. The company’s smoke-free portfolio, reaching 97 markets, saw gains in both volume and geographic reach. Shipments of smoke-free products rose by 11.8%, with net revenue in the segment up 15.2% and gross profit up 23.3%. This growth continues to outpace the legacy tobacco segment.

IQOS, a heat-not-burn device, generated more than $3 billion in net revenue and holds a 76% share of the global heat-not-burn category. In Europe, adjusted in-market IQOS sales volumes accelerated to 9.1% growth after regulatory headwinds subsided, while in Japan, adjusted volumes rose 7.8 %, lifting market share to 31.7 %.

Oral nicotine products, led by ZYN pouches, continued rapid expansion, especially in the U.S. ZYN shipment volume jumped 26.5% globally, with U.S. can shipments up more than 40% to reach 190 million cans. In June 2025, U.S. ZYN offtake growth was approximately 36%, according to Nielsen, and ZYN is now available in 44 markets. VEEV, the closed pod e-vapor product, more than doubled shipment volumes, particularly in Europe where it achieved a top market position in six countries. Across all these products, the company cited the benefit of recent FDA approvals in the U.S. supporting regulatory and commercial momentum.

Results for traditional combustibles showed cigarette volumes declining 1.5%, but revenue for this segment still grew by 2.1%, aided by strong pricing. Marketing, Administration and Research Costs rose 16.0% versus the prior year. Supply chain updates included $243 million in pre-tax restructuring costs tied to plant changes in Germany, while gross profit margins overall improved, driven by favorable product mix toward non-combustibles.

There was no material impact mentioned from tariffs or global supply chain disruptions in the period, and regional revenue trends were generally solid. Europe’s organic revenue rose 7.3%, led by smoke-free growth, while the Americas saw a 17% jump in organic net revenues, powered by oral nicotine. Still, the European market experienced a 1.7% decline in shipment volume, largely from cigarette declines in countries like Poland, Italy, and France. These results underline the variable pace of market shifts and emphasize the importance of navigating product trends and tax or regulatory issues.

The company declared a quarterly dividend of $1.35 per share (annualized $5.40), unchanged from the prior levels. Management’s commentary reiterated its commitment to maintaining a progressive dividend policy, supported by strong cash flows and steady balance sheet management.

Looking Ahead: Guidance and What to Monitor

The company updated its full-year outlook, raising its expected adjusted diluted EPS to $7.43 ($7.33 excluding currency effects), which represents growth of 11.5% to 13.5% from last year’s adjusted diluted EPS of $6.57. Forecasts for organic net revenue growth sit at 6–8 % with shipment volume expected to rise about 1%. Smoke-free product volumes are now projected to grow 12–14% with cigarette volumes set to fall about 2%. ZYN shipments in the U.S. are anticipated between 800–840 million cans, a higher range than before. Capital expenditure guidance is $1.6 billion, primarily allocated to smoke-free scale-up while operating cash flow is forecast at around $11.5 billion.

Investors should keep watch for the durability of smoke-free product growth, progress with regulatory engagement, and the possibility of margin pressure if marketing or research costs continue to rise. Inventory normalization in products like ZYN—where restocking fueled shipment spikes in the first half—could also influence performance dynamics in the coming quarters. No new material dividend changes have been announced, and the company continues to target a net debt to adjusted EBITDA ratio of two times by the end of 2026.

Note: Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.