Five things to watch in markets in the week ahead
Introduction & Market Context
Philip Morris International (NYSE:PM) reported record third-quarter 2025 results on October 21, showcasing strong performance across its portfolio, particularly in its smoke-free products segment. Despite beating analyst expectations with adjusted earnings per share of $2.24 (versus forecasted $2.09) and revenues of $10.8 billion (exceeding estimates of $10.63 billion), the company's stock fell 8.86% in regular trading following the announcement.
The company's presentation highlighted its ongoing transformation toward smoke-free products, which continue to drive growth while its traditional combustible business remains resilient with strong pricing power.
Quarterly Performance Highlights
Philip Morris delivered impressive financial results for Q3 2025, with adjusted diluted EPS growing 17.3% including currency effects to $2.24, significantly above analyst expectations. Net revenues increased by 5.9% organically, or 7.3% when excluding the impact of Indonesia's cigarette business model change.
As shown in the following chart detailing the company's Q3 2025 performance:
The company's adjusted operating income grew 7.5% on an organic basis and 12.4% when including currency and acquisition/divestiture effects, reaching $4.7 billion for the quarter. These results reflect PMI's ability to balance investments in growth with margin expansion, as the adjusted operating income margin increased to 43.1%.
Year-to-date performance through September 2025 has been equally strong, with shipment volumes up 1.8%, net revenues growing 7.5% organically, and adjusted operating income increasing 12.5% organically:
Smoke-Free Growth Strategy
Philip Morris's transformation into a predominantly smoke-free company continues to accelerate, with smoke-free products driving overall volume growth. In Q3 2025, smoke-free product shipment volume increased 16.6% year-over-year, while cigarette volume declined by 3.2%.
The following chart illustrates how smoke-free products are driving the company's total volume growth:
The company's smoke-free business is increasingly profitable, with gross margins for smoke-free products reaching 70.0% in Q3 2025, exceeding the 66.5% margin for combustibles. This profitability advantage underscores the strategic value of PMI's smoke-free transformation.
Philip Morris has expanded its smoke-free product presence to 100 markets globally, with an increasing number of markets featuring multiple product categories. This multicategory approach is a key element of the company's growth strategy:
Product Portfolio Performance
IQOS, PMI's flagship heated tobacco product, continues to show strong momentum with HTU (heated tobacco unit) adjusted in-market sales growth of 10.0% year-to-date through September 2025. The company expects this growth to accelerate in Q4.
ZYN, Philip Morris's nicotine pouch product, is experiencing rapid growth, particularly in the U.S. market. U.S. ZYN volumes increased 37% year-over-year to 204.9 million cans in Q3 2025, while international nicotine pouch volumes grew 27% (100% excluding Nordic markets).
The following chart shows ZYN's impressive volume growth:
ZYN has become the #1 growing brand by value in U.S. convenience stores, outpacing major beverage brands like Red Bull, Celsius, and Monster Energy. In Q3 2025, ZYN added $177 million in retail value growth, compared to Red Bull's $121 million and Celsius's $107 million.
VEEV, the company's e-vapor product, has shown sustained acceleration with volumes growing 91% year-over-year to 885 units in Q3 2025. The brand has achieved the #1 position in eight markets within the closed pod segment.
Regional Performance
In Europe, Philip Morris continues to see strong growth across its smoke-free portfolio. The company now has 30 multicategory European markets, and IQOS adjusted in-market sales have increased from 13.5 in FY'24 to 14.3 in Q3'25.
In Japan, IQOS is driving the heated tobacco category toward a 50% market share milestone, with the category now representing 48.5% of the market. PMI's HTU adjusted share of market in Japan stands at 31.7%, up 1.8 percentage points year-over-year.
The company is also seeing strong smoke-free product growth across other global markets, with IQOS volumes up 14.9% year-over-year, ZYN volumes increasing 1.8x, and VEEV volumes growing 1.4x in markets outside the U.S., Europe, and Japan.
Forward-Looking Statements
Based on its strong year-to-date performance, Philip Morris has raised its earnings forecast for 2025. The company now expects:
The company is on track to exceed its previously announced 2024-2026 CAGR targets, with year-to-date performance in 2025 already surpassing the long-term growth objectives:
Market Reaction & Analysis
Despite the strong financial results and raised guidance, Philip Morris's stock fell 8.86% on the day of the announcement, closing at $155.85, down from the previous close of $158.06. This negative market reaction contrasts with the company's 34.7% year-to-date return prior to the announcement.
The disconnect between the company's performance and stock price movement may reflect investor concerns about increased competition in the smoke-free segment, potential regulatory challenges, or the sustainability of growth rates in key markets. Additionally, the company mentioned higher U.S. investments, which could impact near-term profitability despite long-term growth potential.
Philip Morris continues to demonstrate strong execution of its smoke-free transformation strategy, with smoke-free products now accounting for over 60% of market share in its portfolio. The company's focus on multicategory deployment and continued innovation positions it well for future growth, despite the market's current cautious stance.
Full presentation:
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