Philip Morris International (NYSE:PM) just reported a record quarter that looks like proof its smoke-free bet is working. Adjusted earnings per share reached $2.36, a quarterly high, and smoke-free products made up more than 40% of net revenue.
But cigarettes grew faster, with sales of cigarettes and other combustibles up 6.4%, ahead of the 4.1% gain in smoke-free, and pricing in international cigarettes adding 8.9%. That raises the question for the stock: is its premium price a bet on smoke-free growth that cigarettes are still paying for?
Philip Morris sells Marlboro and other cigarettes, mostly outside the U.S., along with IQOS heated-tobacco devices and ZYN nicotine pouches. It uses cigarette profits to fund the move away from smoking, and this quarter shows that plan working. At today’s price, though, the stock needs smoke-free to take over more of the lead soon. The company is one of the 10 No-Brainer Stocks to Buy Now.
Photo by Arturo Añez on Unsplash
Cigarette Pricing Is Paying for the Switch
Marlboro gained share again and reached a record in its international markets, even as prices went up. Adjusted operating margin widened to 44.7%. Raising prices while winning customers points to real pricing power, and it is the cash that funds everything else.
Part of the quarter’s cigarette strength will fade. The company restructured distribution terms in some markets, which helped results and is not expected to recur at the same level. Even so, cigarette cash supports a quarterly dividend that was just raised. For investors looking for steady payouts, our list of 10 Best Blue Chip Dividend Stocks to Buy Right Now is worth a look.
Smoke-free is growing, just more slowly this quarter. IQOS heated-tobacco shipments rose, but international smoke-free net revenue grew only 0.7%, held back by shipment timing in Japan. The business is gaining customers faster than it is gaining sales.
U.S. ZYN Spending Is Squeezing Profit
In the U.S., net revenue jumped 22.7%, helped by easy comparisons against last year’s promotions. But U.S. operating income fell 3.3% as Philip Morris spent more to market ZYN. It plans to spend more in the fourth quarter, when most flagship ZYN products move to larger cans. The FDA also recently authorized more ZYN ULTRA variants, which widens what the brand can sell. Group CEO Jacek Olczak told investors the company remains on track for a sixth straight year of volume growth.
The company also named costs that limit how much of that growth reaches profit. Energy costs tied to the Middle East conflict, which the company calls manageable, and supply disruptions from strikes in Ukraine are both adding pressure. Philip Morris expects 2026 organic operating income growth to land in the middle or lower half of its 7% to 9% range. It changed its adjusted EPS forecast only to reflect currency. That does not break the case, but it makes the top of the range less likely. If you’re looking for defensive stocks amid geopolitical tension, check out 8 Best Defensive Stocks to Buy Amid Geopolitical Tensions.
What the Price Assumes About Growth
On estimated 2026 adjusted earnings, Philip Morris trades at 23.78 times, well above a sector median of 15.28 and its own five-year average of 18.38. Analysts expect adjusted EPS to grow 11.49% this year, faster than the roughly 7.1% a year earnings per share grew over the past five years. Those adjusted earnings also leave out a non-cash investment loss that dragged reported earnings lower in the quarter. If you’re interested in cheaper stocks, we recently compiled a report on 10 Best Undervalued Stocks to Buy in October.
A stock priced above both its peers and its own history looks reasonable only if growth speeds up. For someone holding the shares, that means paying a smoke-free price for a business that leaned on cigarettes this quarter.
Cigarettes grew faster this quarter, and part of that boost will fade, so the premium now depends on smoke-free taking the lead. The thing to watch is international smoke-free revenue in the fourth quarter, where Philip Morris expects growth to speed up.
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This article is originally published at Insider Monkey.
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