Philip Morris: Positive Q3; Putting That 1.5% FCF/Share CAGR in Context

Company Update (PM US) (Buy)

Highlights

• IQOS In-Market Sales grew 19.3% in Europe and 14.9% in Japan

• ZYN grew its U.S. volume by 65.7% and gained market share

• In € and ex. Canada loss, FCF/Share CAGR was 9.2% in 2018-22

• More stable volume and mix shift since 2018 imply strong EPS growth

• At $90.92, we see 102% total return (26.8% p.a.) by end of 2026

Introduction

Philip Morris (“PM”) released Q3 2023 results last Thursday (October 19).

Q3 results were strong. Year-on-year total cigarette and Heated Tobacco shipment growth was again positive at +2.2%. Heated Tobacco In-Market Sales grew 19.3% in Europe and 14.9% in Japan. U.S. nicotine pouch shipments grew 65.7% year-on-year, with ZYN accelerating its growth and gaining market share. Cigarette shipments fell only 0.5%.  Adjusted EBIT margin improved sequentially, and Adjusted EBIT grew 12.1% year-on-year in dollars. Full-year 2023 guidance was revised slightly, with expected Adjusted EPS growth raised 10.0-10.5%.

We also review PM’s longer-term track record. While it is tru…