$Philip Morris(PM)$ shares jumped more than 10% after a strong third-quarter 2024 performance that beat market expectations and lifted guidance for the full year.It also had the most successful turnaround of any of the many giants in the tobacco industry.
Q3 overall results
Total sales: $198.6 billion, up 2.4 per cent year-on-year, beating expectations of 2.3 per cent.
Revenue: revenues increased 8.4% year-over-year to approximately $9.91 billion, beating market expectations of $9.66 billion, the
Profit: adjusted EPS increased 18% to $1.91.
Gross margin: Gross margin also improved due to a higher proportion of high margin smokeless products.
Operating income: Adjusted operating income increased by 13.8% year-on-year, demonstrating the effectiveness of the company's cost control and pricing strategies.
Business Segments
Electronic Cigarette Smokeless Products
IQOS: IQOS was a particularly strong performer, with sales of heat-not-burn (HTU) products up 14.8 per cent in the third quarter.The Japanese market continues to be strong and Europe has seen a recovery, with overall sales reaching 35.3 billion units.
ZYN: ZYN, the leader in smokeless brands in the U.S., sold 149 million cans in the third quarter, an increase of more than 40% year-over-year.Despite facing production capacity constraints, the company is aggressively expanding its production capacity to meet the continued growth in demand.
Other smokeless products: E-cigarettes, including VEEV, also performed well, with sales continuing to rise, demonstrating the success of the Company's multi-category strategy.
Traditional Combustible Tobacco
Combustible Tobacco: Net revenue and gross profit from combustible products grew nearly 9 per cent.Despite market challenges, the company achieved steady growth through effective pricing strategies and cost control.
Market share: Combustible tobacco's market share remained stable in a number of markets, including Turkey, India and Italy, demonstrating the Company's resilience in the traditional tobacco business.
Guidance
Q4: The Company expects to continue its strong sales momentum in Q4 2024, especially in smokeless products such as IQOS and ZYN.Management mentioned that the production capacity of ZYN is expected to be further ramped up in Q4 to meet market demand.
Full Year 2024: PMI has increased its overall financial guidance for 2024 and expects full year revenue and EPS to exceed original expectations.The company plans to continue to drive market share in smokeless products while maintaining profitability in combustible products
2025 OUTLOOK: PMI plans to further expand its ZYN production capacity in 2025 and expects to launch new product lines to meet growing market demand.In addition, the company is actively promoting the IQOS ILUMA device in the U.S. market and hopes to obtain FDA authorisation in the second half of 2025
Investment Highlights
Successful market positioning and strategic advantages to help stabilise volumes.The cigarette industry as a whole is challenged by declining volumes, with PM showing only a 0.4% volume decline in the first half of 2024 and achieving a 0.4% increase in the second quarter.Meanwhile $Altria(MO)$ and $British American Tobacco PLC(BTI)$ companies were down 11.5% and 12.5%, respectively, in stark contrast.
Rapid growth in smokeless products.PMI's nicotine pouch product, Zyn, achieved 50% growth in the first half of 2024 and has been a key driver of the company's smokeless business, which now accounts for nearly 40% of PMI's total revenues, while its peers, and MO's products, have struggled.The company plans to completely phase out cigarette production by 2030 and continues to increase its investment in research and development of harm reduction products.Smokeless products are expected to continue to drive the Company's revenue growth in the coming years.
Further international market expansion.Focusing on overseas markets, PMI has avoided pressure on the US cigarette market, and through the acquisition of Swedish Match, PMI has further strengthened its competitiveness in the smokeless product segment.
Financials & Dividend.Although PMI's dividend yield of 4.5 per cent is lower than Altria (7.7 per cent) and British American Tobacco (8.4 per cent), its stable financial performance and favourable growth prospects make it a more well-rounded investment option.
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