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Investing.com -- S&P Global Ratings has upgraded Philip Morris International Inc (NYSE:PM).’s (PMI) outlook from stable to positive, citing strong growth momentum and a supportive financial policy. PMI outperformed S&P’s fiscal year 2024 base case, with a discretionary cash flow (DCF) of $3.5 billion and an adjusted net debt to EBITDA of 2.8x. This performance was primarily driven by growth in its smoke-free product portfolio, which was boosted by the successful integration of Swedish Match AB’s acquisition in 2022.
S&P forecasts that PMI will generate a positive DCF of about $1 billion in 2025 and approximately $3 billion in 2026. This, along with a supportive financial policy, is expected to help PMI reduce its adjusted debt to EBITDA to about 2.5x in 2025 and close to 2.0x by 2026.
The rating agency’s forecasts for 2025 and 2026 show continued adjusted EBITDA growth to $17 billion in 2025 and $19 billion in 2026. This growth is underpinned by strong business momentum in smoke-free products and a resilient combustible cigarette product portfolio. The growth is expected to be supported by ongoing capacity expansion and category-led growth for ZYN nicotine pouches in the U.S. and the IQOS franchise-led growth outside the U.S.
The positive outlook reflects the possibility of an upgrade for PMI within the next 12-24 months if credit metrics continue to improve, such as adjusted debt to EBITDA close to 2.0x, and if the positive business momentum is sustained, with a consistent financial policy.
PMI reported overall revenue growth of about 8% in 2024, with organic revenue growth close to 10%. This was led by very strong growth of 16.7% in the smoke-free product portfolio, which accounted for about 39.0% of total revenues in 2024.
S&P forecasts that PMI will maintain strong revenue growth of 8%-9% annually in 2025-2026 thanks to further growth in the smoke-free product portfolio. This growth is expected to support debt reduction prospects toward 2.5x in 2025 and close to 2.0x by the end of 2026.
The group is expected to pursue a consistent financial policy to reach its publicly stated target of reported net debt to EBITDA of 2.0x by 2026. This target was set about four years after the completion of its historical debt-funded acquisition of Swedish Match for about $16 billion in late 2022.
The positive outlook indicates that S&P could upgrade PMI’s ratings within the next 12-24 months if the current positive business momentum in the large smoke-free product portfolio continues, and if the company’s consistent financial policy leads to steady debt deleveraging by the end of 2026.
However, S&P could revise the outlook to stable if PMI is not able to deleverage further from current levels, such that adjusted debt to EBITDA remains comfortably in the 2.0x-3.0x range, with no prospect for further improvement over the next 12-24 months. This could occur due to a loss of growth momentum in the smoke-free product portfolio or an unexpected shift in the company’s financial policy.
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