EU and US could reach trade deal this weekend - Reuters
Investing.com -- Fitch Ratings revised its outlook for US tobacco company Philip Morris International, Inc. (NYSE:PM) to stable from negative on March 12, 2025. The rating agency also affirmed the company’s Long-Term Issuer Default Rating (IDR) and senior unsecured long-term rating at ’A’.
Fitch’s decision to revise the outlook reflects significant progress made by Philip Morris in reducing its debt and recovering its cash flow. The company aims to reach a target of 2x net debt/EBITDA by 2026. Fitch anticipates the company’s net EBITDA leverage to decrease to 2.5x by the end of 2025, down from 2.8x in 2024. Fitch also predicts strong positive free cash flow margins for the company over the period 2025-2028.
The ’A’ IDR for Philip Morris is anchored by the company’s leading position in the global tobacco sector, its diverse product offering, and its commitment to achieving its net leverage target by 2026. The company’s rating was affected by its acquisition of Swedish Match (SM).
Fitch expects Philip Morris to continue its robust operating performance as the scale of smoke-free products expands and additional cost efficiencies are realized. This is expected to further reduce the company’s leverage to 2.5x by the end of 2025 and 2.0x by the end of 2026, aligning with the company’s ’A’ rating category.
In 2024, Philip Morris achieved a significant portion of its announced USD2 billion cost-efficiency plan for 2024-2026, with USD750 million already realized. Despite this, the company’s focus on large progressive dividend distributions significantly limits available cash flow to reduce debt. Fitch believes Philip Morris is likely to resume share buyback from 2027, while keeping leverage below 2x.
The company’s performance in 2024 was strong with organic revenue growth of 9.8% and adjusted operating income up 14.9% in constant currency terms. This was driven by strong performance in smoke-free products. Fitch expects 7%-8% organic revenue growth in 2025-2028, with a gradual improvement in EBITDA margin to above 45% (2024: 41%).
Fitch also noted the company’s capacity to adapt to regulations, providing a competitive advantage and serving as a credit strength. The older generation IQOS device is the only inhalable smoke-free nicotine product in the US to have received a modified risk tobacco product order from the FDA.
Philip Morris’s ratings are anchored in its market-and-price leadership in the global tobacco industry, supported by a diverse portfolio of leading tobacco and smoke-free brands in the countries in which it operates. The company aims to achieve two-thirds of net revenue from smoke-free products by 2030.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.