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Philip Morris (PM) on Track to Achieve Smoke-Free Future

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Philip Morris International Inc. (PM - Free Report) is committed to replacing cigarettes with scientific and innovative smoke-free alternatives. Recently, the company launched its latest heat-not-burn tobacco heating system — BONDS by IQOS — with its accompanying designed tobacco sticks, BLENDS.

BONDS by IQOS, designed only to be used with BLENDS tobacco sticks, will be available in five different flavors like menthol, classic and aromatic. BONDS by IQOS was piloted in the Philippines, with commercialization expected in the rest of 2022 and 2023.

The newly unveiled product offers adults access to low-maintenance, compact and hassle-free smoke-free products as a better alternative to cigarettes. BONDS by IQOS heats tobacco rather than burning it, which gives authentic tobacco taste satisfaction with a lower smell than cigarettes and no ash. The heating of tobacco in BONDS by IQOS emits 95% lower harmful chemicals when compared to cigarettes.

The move is in sync with Philip Morris’ efforts to accelerate the achievement of a smoke-free future. Management highlighted that at the end of 2021, PMI’s smoke-free products were available in 30 LMIC markets. By 2025, Philip Morris expects at least 40 million adults to have switched to its smoke-free products and over 50% of its total net revenues to come from smoke-free products. As of Sep 30, 2022, management projects that there were almost 19.5 million total IQOS users (excluding Russia and Ukraine), of which nearly 13.5 million have switched to IQOS and given up smoking.

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What Else is Driving Growth?

Serious health hazards due to cigarette smoking have pushed consumers toward low-risk, reduced risk products (RRPs). The company is progressing well with its business transformation, with smoke-free products generating more than 30% of the company’s net revenues in the third quarter of 2022. The company is well placed to become a majority smoke-free company by 2025. Toward this end, the company’s IQOS, a heat-not-burn device, counts as one of the leading RRPs in the industry.

Philip Morris has long been benefiting from its strong pricing power, which has aided its revenues and adjusted operating income even in the face of the unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. In fact, higher pricing variance was an upside to the company’s performance across most regions during the third quarter of 2022. During the quarter, both the top and the bottom line improved year over year and beat the respective Zacks Consensus Estimate.

For 2022, the company expects proforma adjusted net revenues to increase by nearly 6.5-8% on an organic basis (compared with 6-8% before). Proforma adjusted earnings per share (EPS), excluding currency impacts, is expected to increase 10-12% to the $6.09-$6.20 range in 2022.

Shares of the Zacks Rank #3 (Hold) company have risen 1.6% in the past three months against the industry’s 0.1% decline.

3 Solid Staple Picks

Some top-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) .

The Chef's Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). Chef's Warehouse has a trailing four-quarter earnings surprise of 93.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year sales suggests growth of 46.5% from the year-ago reported number, while earnings indicate significant growth.

General Mills, which manufactures and markets branded consumer foods, carries a Zacks Rank #2 (Buy) at present. General Mills has a trailing four-quarter earnings surprise of 6.1%, on average.

The Zacks Consensus Estimate for GIS’ current financial-year sales and earnings suggests growth of 2.7% and 3.8%, respectively, from the year-ago reported numbers.

Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2. CAG has a trailing four-quarter earnings surprise of 1.8%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current financial-year sales and earnings suggests growth of 5.2% and 3.4%, respectively, from the corresponding year-ago reported figures.

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