Philip Morris International: Juggernaut

“The composition of our growth, once again, highlights the consistency and sustainability of our model with stable to growing volumes, durable pricing power, and superior smoke-free economics continuing to be the primary drivers of our performance.” - Emmanuel Babeau, PMI Q2’26 Call

Philip Morris International posted Q2 2026 results that were, by essentially all measures, fantastic. Sure to be overlooked by many is the remarkable performance of the combustibles business. Despite steering most resources toward next-gen initiatives, cigarettes continue to generate ever-larger piles of revenue and profits. Cigarette volumes increased by 1.1% for the quarter, net revenues increased by 9.8% (6.4% organic), and gross profit ascended by 11.5% (8% organic). No matter how badly the company wishes to deliver a smoke-free future, it and its shareholders must learn to remain content with the enormity of these legacy cash flows. What a wonderful problem to have.

Yes, there are slight points of weakness elsewhere on the surface, and I’ve spent considerable time attempting to poke larger holes in the system. There is little leakage to be found. The key takeaway is that the well-oiled machine remains…well-oiled.

The deceleration in the HTU space could be viewed as a blemish. Excise changes and flavor bans elsewhere have thrown a bit of water on the fire. However, there’s no indication that the long-term trend has changed. It is more easily argued (and management has taken the time to) that there is even benefit from these changes to be recognized down the line, the prime example being Japan, where future price hikes for combustibles and HTUs in the coming years improve the relative affordability of IQOS vs. legacy products, as well as create a steeper hurdle to overcome for competitors who (still) have lesser-quality products. After much commotion over the last year about new tiers of competing products, heavily subsidized and promoted in Japan, it seems appropriate to point out that IQOS has still retained its dominant position.