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Smoke-free gross profit rose 33% YoY, outpacing volume gains and boosting operating income margin.
Philip Morris International (PM - Free Report) is redefining its profit engine through the accelerated growth of the smoke-free portfolio. In the first quarter of 2025, smoke-free products contributed 44% of the company’s total gross profit, a significant milestone in its transition away from combustible tobacco. Even more telling is the gross margin for smoke-free products, which exceeded 70%, surpassing that of combustibles by more than 5 percentage points in the first quarter.
This is not just a function of scale, it is a direct result of strong pricing, favorable product mix and rising demand across IQOS, ZYN and VEEV. ZYN was highlighted as a key contributor to margin expansion, supported by strong pricing and per-can profitability.
The company also benefited from expanded manufacturing efficiencies and productivity gains, particularly within IQOS, which continues to mature in high-penetration markets like Japan and parts of Europe. While SG&A expenses rose in the quarter, partly due to heavier investment in smoke-free infrastructure, PM still delivered robust operating income margin expansion. Smoke-free gross profit surged more than 33% year over year, well ahead of volume growth, indicating enhanced operating leverage.
The shift in mix toward high-margin categories is expected to remain a structural advantage for Philip Morris. With strong consumer adoption and ongoing innovation, the company’s ability to maintain or even expand its margin leadership appears rooted in a deliberate and well-executed smoke-free strategy.
PM’s Competition in the Smoke-Free Category
Altria Group, Inc. (MO - Free Report) continues to grow its oral nicotine brand, on!, with 18% volume growth in the first quarter of 2025. However, Altria’s smoke-free profit share remains modest. The Oral Tobacco Products segment posted a strong 69.2% adjusted operating income margin. Altria highlighted increased brand awareness for on!, supported by the “It’s On!” campaign and plans to continue investment in brand equity and distribution across new and existing channels.
Turning Point Brands, Inc. (TPB - Free Report) is rapidly scaling its modern oral nicotine portfolio, with FRE and ALP achieving nearly 10x year-over-year sales growth in the first quarter of 2025. Despite this, Turning Point Brands’ gross margin declined 220 basis points and was flat sequentially, reflecting upfront investment and rising logistics costs. To support continued growth, Turning Point Brands is expanding its sales force, reallocating marketing resources and investing in retail and online distribution to scale both FRE and ALP brands within the modern oral category.
PM’s Price Performance, Valuation & Estimates
Shares of Philip Morris have lost 1.9% in the past month compared with the industry’s decline of 0.1%.
Image Source: Zacks Investment Research
From a valuation standpoint, PM trades at a forward price-to-earnings ratio of 22.25X, up from the industry’s average of 15.11X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for PM’s 2025 and 2026 earnings implies year-over-year growth of 13.7% and 11.7%, respectively.
Image: Bigstock
PM Grows Smoke-Free Profit Share: Will Margins Keep Expanding?
Key Takeaways
Philip Morris International (PM - Free Report) is redefining its profit engine through the accelerated growth of the smoke-free portfolio. In the first quarter of 2025, smoke-free products contributed 44% of the company’s total gross profit, a significant milestone in its transition away from combustible tobacco. Even more telling is the gross margin for smoke-free products, which exceeded 70%, surpassing that of combustibles by more than 5 percentage points in the first quarter.
This is not just a function of scale, it is a direct result of strong pricing, favorable product mix and rising demand across IQOS, ZYN and VEEV. ZYN was highlighted as a key contributor to margin expansion, supported by strong pricing and per-can profitability.
The company also benefited from expanded manufacturing efficiencies and productivity gains, particularly within IQOS, which continues to mature in high-penetration markets like Japan and parts of Europe. While SG&A expenses rose in the quarter, partly due to heavier investment in smoke-free infrastructure, PM still delivered robust operating income margin expansion. Smoke-free gross profit surged more than 33% year over year, well ahead of volume growth, indicating enhanced operating leverage.
The shift in mix toward high-margin categories is expected to remain a structural advantage for Philip Morris. With strong consumer adoption and ongoing innovation, the company’s ability to maintain or even expand its margin leadership appears rooted in a deliberate and well-executed smoke-free strategy.
PM’s Competition in the Smoke-Free Category
Altria Group, Inc. (MO - Free Report) continues to grow its oral nicotine brand, on!, with 18% volume growth in the first quarter of 2025. However, Altria’s smoke-free profit share remains modest. The Oral Tobacco Products segment posted a strong 69.2% adjusted operating income margin. Altria highlighted increased brand awareness for on!, supported by the “It’s On!” campaign and plans to continue investment in brand equity and distribution across new and existing channels.
Turning Point Brands, Inc. (TPB - Free Report) is rapidly scaling its modern oral nicotine portfolio, with FRE and ALP achieving nearly 10x year-over-year sales growth in the first quarter of 2025. Despite this, Turning Point Brands’ gross margin declined 220 basis points and was flat sequentially, reflecting upfront investment and rising logistics costs. To support continued growth, Turning Point Brands is expanding its sales force, reallocating marketing resources and investing in retail and online distribution to scale both FRE and ALP brands within the modern oral category.
PM’s Price Performance, Valuation & Estimates
Shares of Philip Morris have lost 1.9% in the past month compared with the industry’s decline of 0.1%.
Image Source: Zacks Investment Research
From a valuation standpoint, PM trades at a forward price-to-earnings ratio of 22.25X, up from the industry’s average of 15.11X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for PM’s 2025 and 2026 earnings implies year-over-year growth of 13.7% and 11.7%, respectively.
Image Source: Zacks Investment Research
Philip Morris currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.