Philip Morris rises on smoke-free growth, upbeat 2026 outlook
ZYN nicotine pouch shipments surge 37% as smoke-free products reach 41.5% of revenue mix
Philip Morris International shares climbed in early Thursday trading after the tobacco giant reported fourth-quarter results that topped analyst expectations and delivered robust growth in its smoke-free product portfolio, validating years of investment in reduced-risk alternatives.
The company posted adjusted earnings per share of $1.70 for the final quarter of 2025, meeting analyst projections of $1.67 to $1.70, while full-year adjusted EPS reached $7.54, marking a 14.8% increase from the prior year. The stock rose 0.9% to $182.00 in pre-market activity, building on a year-to-date gain that has taken shares within striking distance of their 52-week high of $184.40.
The standout performance came from PM's smoke-free business unit, which delivered 15% organic revenue growth to reach $16.9 billion for the full year. These products now account for 41.5% of total revenues, a dramatic shift for a company that historically derived nearly all sales from combustible cigarettes. The transformation underscores PM's strategic bet that the future of tobacco lies in heated tobacco systems and nicotine pouches rather than traditional smoking.
ZYN, the company's nicotine pouch brand that has become a consumer phenomenon in the United States, shipped 794 million cans during 2025, representing 37% growth in the US market. The pouch format has resonated particularly with younger consumers seeking nicotine alternatives without combustion or tobacco leaf. That performance helped drive overall quarterly revenue to $10.4 billion, a 6.8% increase that aligned with Wall Street expectations.
Looking ahead, PM provided 2026 adjusted EPS guidance of $8.38 to $8.53, representing 7.5% to 9.5% growth excluding currency effects. While some investors had hoped for more aggressive projections, the midpoint of that range implies continued double-digit expansion in earnings, a notable achievement for a mature consumer staples company operating in a highly regulated industry.
The company maintained its quarterly dividend at $1.47 per share, equivalent to an annualized payout of $5.88. That translates to a 3.1% yield at current prices, making PM attractive to income-focused investors. The dividend declaration came despite the company's substantial capital expenditures on smoke-free product development and manufacturing capacity.
Analyst sentiment remains broadly positive, though some recent downgrades reflect concerns about intensifying competition. Stifel Nicolaus reiterated its buy rating with a $180 price target on February 3, according to MarketBeat data. However, Jefferies downgraded PM to hold from buy on January 20, slashing its price target from $220 to $180 amid worries about competitive pressure in the nicotine pouch category and potential regulatory headwinds.
The competitive landscape has indeed grown more crowded as British American Tobacco's Velo brand and Altria's On! attempt to capture share in the rapidly expanding nicotine pouch market. Yet PM's first-mover advantage and established distribution network have allowed it to maintain category leadership in the United States, where ZYN has become synonymous with nicotine pouches among consumers.
PM's strategic pivot began more than a decade ago with the development of IQOS, its heated tobacco system that uses electronic devices to heat tobacco sticks rather than burn them. While IQOS gained traction in international markets, particularly Japan and the European Union, it's the US success of ZYN that has accelerated the company's smoke-free transition. The $281 billion company now operates across more than 180 markets, giving it unparalleled global scale to market and distribute reduced-risk products.
The shift toward smoke-free products carries significant implications beyond financial results. Public health advocates have long sought alternatives to combustible cigarettes, which remain the leading preventable cause of death worldwide. PM's investment in reduced-risk products positions the company to navigate an increasingly restrictive regulatory environment while potentially contributing to public health goals through reduced smoking prevalence.
From an investor perspective, PM's ability to generate mid-single-digit to high-single-digit earnings growth while maintaining a competitive dividend yield supports its valuation of approximately 25 times trailing earnings. The forward P/E ratio of 21.1 suggests the market is pricing in continued execution of the smoke-free transition strategy.
With smoke-free products approaching half of total revenue, PM is demonstrating that a traditional tobacco company can successfully reinvent itself for a new era. The 2026 guidance, while conservative, suggests management is confident in sustaining momentum without overpromising on growth that may face execution risks. For investors, the question becomes whether the company can maintain its competitive edge as the smoke-free category becomes more crowded and regulators increase scrutiny of novel nicotine products.