Philip Morris Q4: Smoke-Free Hits 41.5% of Revenue
IQOS maker posts $40.6B full-year revenue as smoke-free products cross the 40% threshold. Q4 EPS of $1.70 misses by $0.05, but 2026-28 growth targets impress.
Philip Morris International reported Q4 earnings Thursday morning that told two different stories depending on which line you read first. The headline miss—$1.70 EPS versus the $1.75 consensus, revenue of $10.36 billion against a $10.75 billion estimate—masked what was genuinely a transformation milestone: smoke-free products now account for 41.5% of the company's total net revenue.
That's the number that matters for PM's long-term thesis, and it crossed the 40% mark for the first time in the company's history.
Full-Year Results
For 2025, Philip Morris posted $40.6 billion in net revenues, with adjusted diluted EPS of $7.54—a 15% increase in dollar terms. Operating margin returned above 40% at 40.4%, reflecting the ongoing margin expansion from higher-priced smoke-free alternatives.
| Metric | Full Year 2025 | Year-over-Year |
|---|---|---|
| Net Revenue | $40.6B | Growth |
| Adjusted EPS | $7.54 | +15% |
| Smoke-Free Revenue | $16.9B | 41.5% of total |
| Operating Margin | 40.4% | Expansion |
| Smoke-Free Shipments | 179B units | +12.8% |
The smoke-free segment is increasingly the company. IQOS heated tobacco unit shipments grew 11% to 155 billion units, and PM now sells smoke-free products in 106 markets with over 43 million estimated adult consumers worldwide.
The Q4 Miss in Context
The Q4 miss was real but narrow. Earnings came in 5 cents light, and revenue fell about $400 million short of expectations. Some of that gap traces to currency headwinds—PM reports in dollars but earns in dozens of currencies—and some to slower-than-expected combustible cigarette volumes in certain emerging markets.
But the stock didn't get punished the way you'd expect for an EPS miss during a week where Amazon dropped 10% and Qualcomm sank 8% on forward guidance concerns. PM's guidance for the next three years gave the market something to hold onto.
2026-2028 Growth Targets
Management laid out compound annual growth targets through 2028 that suggest the smoke-free pivot is accelerating:
- Net revenue: 6-8% organic CAGR
- Operating income: 8-10% organic CAGR
- Adjusted diluted EPS: 9-11% CAGR
- Smoke-free volume: High single-digit to low-teens growth driving total shipment expansion
Those are aggressive numbers for a company with PM's scale. The EPS growth target of 9-11% would put the stock on a trajectory toward $9+ in earnings by 2028, supporting a meaningfully higher share price if the multiple holds.
The IQOS Story
IQOS remains the engine. The heated tobacco device has established itself as the dominant reduced-risk product globally, particularly in Japan and Europe where regulatory frameworks have been more accommodating. PM's ZYN nicotine pouch brand, acquired through the Swedish Match deal, continues to gain share in the US.
The combined smoke-free portfolio—IQOS, ZYN, and newer products in development—is growing at roughly 13% annually in volume terms. That's a growth rate more typical of a tech company than a tobacco giant, and it's the reason PM's multiple has expanded from the single digits to the mid-teens over the past three years.
Sector Implications
Philip Morris occupies a unique position in the earnings landscape. It's a defensive name with an offensive growth profile. In a week where technology stocks whipsawed violently on AI spending debates, PM's steady transformation story offers a different kind of narrative—one built on product substitution rather than speculative infrastructure bets.
The stock has outperformed both the S&P 500 and the broader consumer staples sector over the trailing twelve months. If the 2026-2028 targets prove achievable, the company's pivot from combustible cigarettes to smoke-free products will rank as one of the more successful corporate transformations of the decade.
The Q4 miss will be forgotten in a week. The 41.5% smoke-free revenue share won't be.