About the company

Philip Morris International Inc. is a New York-based tobacco industry giant best known for its Marlboro brand, one of the world's best-selling cigarettes. The company focuses on developing and marketing smokeless tobacco products, such as IQOS, to reduce the harmful effects of smoking and provide alternatives for adult smokers. In recent years, Philip Morris has invested heavily in research and innovation to reduce the risk of tobacco products while seeking to transform its business strategy towards a smoke-free future. The company operates in many countries around the world and employs thousands of people.

Allegations of misleading claims

Smokefree smoking may not be as safe as new tobacco product manufacturers claim. At least that's what health activists and anti-tobacco organisations claim. The latter have in fact taken Philip Morris to US regulators with allegations against the company. They claim that PMI has lied about past decisions by the US Food and Drug Administration (FDA) and are targeting it to prevent the new IQOS device from being introduced to the US market. This product, in which the company has invested billions of dollars, is crucial to PMI's future growth, but needs FDA approval to be sold in the US. Activists say PMI falsely suggests that IQOS reduces disease risk compared to conventional cigarettes, pointing to recent independent studies that dispute claims of success in switching smokers to IQOS. PMI counters with claims that it is acting in compliance with FDA rules. The regulator has not yet made a decision on whether to approve IQOS for the U.S. market, nor has it yet commented on the complaints that have been filed. [1]

Suspension of online sales of ZYN

Philip Morris has faced several such setbacks in recent months. Back in June, it announced that its subsidiary Swedish Match would temporarily suspend online sales of ZYN products at ZYN.com in response to a subpoena from the District of Columbia (D.C.) Attorney General. The subpoena relates to compliance with the D.C. ban on the sale of flavored tobacco products, which the D.C. implemented in October 2022. Philip Morris bought Swedish Match for $16 billion in 2022 with the goal of reducing cigarette addiction and expanding its portfolio to include alternatives such as ZYN nicotine sachets. The company has launched an internal investigation into the sale of flavoured nicotine sachets, targeting its sales and supply chains in regions with similar legislation. Although electronic sales on ZYN.com account for only a small portion of total ZYN sales in the U.S., the company says it intends to conduct its business in compliance with the law and to comply with regulations.[2]

Economic results

In the first quarter of 2024, Philip Morris generated sales of $8.8 billion, an increase of about 9.7% from the same period in 2023. Net income reached $2.24 billion, with a year-over-year increase of about 7.7%.[3] As part of the growth toward smokeless products for the first quarter of 2024, these products generated 39% of total sales. Revenue from smokeless products grew 21.1%, while sales of IQOS products grew 12.5% and ZYN nicotine sachets grew 40% in the US.

Philip Morris International's share price performance over the last 5 years. (Source: Google Finance)*

Prospects and strategies

By 2030, Philip Morris has set a target of more than two-thirds of revenue from smokeless products, with an emphasis on IQOS and ZYN. In 2024, the company expects faster revenue growth in the smokeless sector and an overall increase in profitability across its portfolio. However, it also plans to continue to invest in innovation and product portfolio expansion, which may temporarily impact these gains. Tobacco costs, wages and other inputs are expected to remain high until the end of 2024.[1]

Conclusion
Philip Morris continues to transform the tobacco industry through smokeless products, despite the challenges associated with regulatory hurdles. As these products account for a significant proportion of the company's revenue, and it is looking to expand their share further, it is important that it does all it can to comply with legal legislation. Philip Morris' economic growth in the first quarter and its expectations for the period ahead are a positive indicator of future growth for the giant. [1]

 Adam Austera, principal analyst at Ozios

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.zacks.com/stock/news/2295414/philip-morris-pm-gains-from-smoke-free-focus-key-priorities

[1] https://www.investing.com/news/stock-market-news/exclusivecampaigners-target-philip-morris-flagship-heated-tobacco-us-launch-3520138

[2] https://www.investing.com/news/stock-market-news/philip-morris-suspends-nationwide-sales-on-zyncom-after-dc-subpoena-3487826

[3] https://www.pmi.com/investor-relations/overview