Philip Morris International (PM -0.10%) stock has had a strong 2025 so far, but the shares pulled back after the company reported its second-quarter results. That dip left the stock up about 36% on the year, as of this writing.
Is the recent slide a buying opportunity or should investors be running for the hills?
Strong volume growth
The Zyn brand remains the driving force behind Philip Morris' robust sales growth. Shipments of the popular nicotine pouches jumped 40% in the U.S. to 190 million cans in Q2, while retail sales volumes (offtake) grew by 26% in the quarter and by 36% in June.
Outside of the U.S. and Nordic countries, Zyn shipments more than doubled, and it is now available in 44 markets. Overall oral product shipments climbed 23.8% on a pouch basis.
The company said Zyn restocking in the U.S. is now effectively complete. It continues to expect U.S. Zyn shipments to be between 800 million and 840 million cans for the year.
Image source: Getty Images
The rest of Philip Morris' smokeless portfolio also performed well. Sales volumes of its heated tobacco units (HTUs), including the Iqos system, jumped nearly 9.2% to 38.8 billion units. The company said in-market sales (to end users) jumped 11.4%. Iqos continues to perform well in Japan and Europe and is seeing strong growth in other major cities outside its two main markets.
Philip Morris also once again saw shipment growth more than double for its e-vapor product, Veev, driven by pod growth in Europe. Veev is now in 42 markets and holds the No. 1 market share in six European markets.
Traditional cigarette volumes, meanwhile, fell by 1.5% to 155.2 billion units. Segment organic revenue, however, grew 2% to $6 billion, and gross profits for the category climbed 5% to $4 billion, as the company's price hikes more than compensated for those volume declines.
Overall, organic revenue, which excludes currency effects, acquisitions, and dispositions, rose 6.8% year over year to $10.1 billion. Adjusted earnings per share (EPS) climbed 20% to $1.91.
| Oral Products (Zyn) | HTUs | Cigarettes | Smoke-Free | Total | |
|---|---|---|---|---|---|
| Volume growth | 23.8% | 9.2% | (1.5%) | N/A | 1.2% |
| Organic revenue growth | N/A | N/A | 2% | 14.5% | 6.8% |
HTUs = heated tobacco units.
Management maintained its full-year guidance for organic revenue while upping its adjusted EPS forecast. It continues to expect strong results from both Zyn and Iqos, but expects a 3% to 4% decline in traditional cigarette volumes due to ongoing issues in Turkey and Indonesia.
The headwind in Turkey is related to supply chain issues following a change in regulatory requirements, while in Indonesia, it's battling to keep market share in the face of growing sales of illicit cigarettes. However, it's still expecting solid gross profit growth from its combustible tobacco business due to its pricing power and cost efficiencies.
| Metric | Prior Guidance | Updated Guidance |
|---|---|---|
| Organic revenue growth | 6% to 8% | 6% to 8% |
| Adjusted EPS | $7.01 to $7.14 | $7.43 to $7.56 |
| Adjusted EPS growth* | 10.5% to 12.5% | $7.33 to $7.46 |
| Volume growth | 2% | 1% |
Data source: Philip Morris International. *Adjusted EPS growth excludes currency exchange impacts. EPS = earnings per share.
Should investors buy the dip?
While investors may have been disappointed by Philip Morris' forecast for steeper declines in cigarette sales volumes in the second half, about half of that is due to a temporary issue around its Turkish supply chain. Meanwhile, the big reason to own the stock is its smoke-free portfolio, led by Zyn and Iqos.
Both products continue to demonstrate strong growth and have better unit economics than Philip Morris' traditional cigarette business. It's also expanding these products to new markets, with early signs of success. Importantly, the company is hoping that the FDA will approve the Iqos Iluma for sale in the U.S. later this year, which would set it up to enter this market now that it has reacquired its U.S. rights from Altria.
From a valuation perspective, the stock got cheaper when management raised its EPS guidance and its share price fell. The stock now trades at a forward price-to-earnings (P/E) ratio of under 22, based on the analyst consensus for 2025, with a PEG (price/earnings-to-growth) ratio of under 0.35. Stocks with positive PEG ratios below 1 are generally viewed as undervalued.
While at the current share price, Philip Morris' dividend has a nice 3.3% forward yield, that's not as high a yield as other tobacco stocks. However, what it lacks in yield, it makes up for by being a unique growth stock in a defensive industry. This is a stock you'll want to own over the long haul, and the dip in the stock price offers a nice buying opportunity.
