Philip Morris (PM)

Tobacco company Philip Morris International (NYSE:PM) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 9.4% year on year to $10.85 billion. Its GAAP profit of $2.23 per share was 12.5% above analysts’ consensus estimates.

Company Overview

Founded in 1847, Philip Morris International (NYSE:PM) manufactures and sells a wide range of tobacco and nicotine-containing products, including cigarettes, heated tobacco products, and oral nicotine pouches.

The company's flagship product portfolio includes iconic cigarette brands such as Marlboro, as well as its reduced-risk products like IQOS, a heated tobacco system.

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors in the tobacco and nicotine product sector include Altria Group (NYSE:MO), British American Tobacco (LSE:BATS, NYSE:BTI), and Imperial Brands (LSE:IMB).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $39.99 billion in revenue over the past 12 months, Philip Morris is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have).

As you can see below, Philip Morris’s sales grew at a decent 8.3% compounded annual growth rate over the last three years as consumers bought more of its products.

This quarter, Philip Morris reported year-on-year revenue growth of 9.4%, and its $10.85 billion of revenue exceeded Wall Street’s estimates by 2%.

Looking ahead, sell-side analysts expect revenue to grow 8.1% over the next 12 months, similar to its three-year rate. This projection is particularly noteworthy for a company of its scale and suggests the market is baking in success for its products.

Philip Morris has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 65.6% gross margin over the last two years. That means for every $100 in revenue, only $34.40 went towards paying for raw materials, production of goods, transportation, and distribution.

Philip Morris’s gross profit margin came in at 67.8% this quarter, marking a 1.8 percentage point increase from 66% in the same quarter last year. Philip Morris’s full-year margin has also been trending up over the past 12 months, increasing by 2.7 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Philip Morris has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 36%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Philip Morris’s operating margin rose by 1.9 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Philip Morris generated an operating margin profit margin of 39.3%, up 2.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Philip Morris reported EPS of $2.23, up from $1.98 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Philip Morris’s full-year EPS of $5.54 to grow 45.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Philip Morris has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 24.2% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Philip Morris’s five-year average ROIC was 56.8%, placing it among the best consumer staples companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Philip Morris reported $4.04 billion of cash and $50.08 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $17.14 billion of EBITDA over the last 12 months, we view Philip Morris’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $969 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Philip Morris beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.8% to $164 immediately after reporting.

Updated: December 3, 2025 at 9:51 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Philip Morris.

There are multiple reasons why we think Philip Morris is an amazing business. For starters, its revenue growth was decent over the last three years. On top of that, its admirable gross margins are a wonderful starting point for the overall profitability of the business, and its impressive operating margins show it has a highly efficient business model.

Philip Morris’s P/E ratio based on the next 12 months is 19x. Looking at the consumer staples landscape today, Philip Morris’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $182.94 on the company (compared to the current share price of $151.80), implying they see 20.5% upside in buying Philip Morris in the short term.