PMI: FY23 Results

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Key Business Metrics: Q4 20231

Revenue: up +8.3% to $9Bn (vs. $9Bn expected)

Adjusted diluted EPS: up +12.2% to $1.36 (vs. $1.45 expected)

Total volume: down -0.5% to 185.1Bn (HnB volume: +6.1% to 34Bn)

Oral nicotine shipment volume: +23.4% to 219.6Mn cans

Smoke-free revenue: up +13.6% to $3.6Bn => 39.3% of total revenue

IQOS now surpassed Marlboro in terms of net revenues, becoming the leading premium nicotine brand in less than 10 years from launch

Key Business Metrics: FY23

Revenue: up +7.8% to $35.2Bn

Reported EPS: down -13.6% to $5.02 (down -2.8% after FX-adjustment)

Adjusted EPS: up +11% to $6.01 (after FX-adjusted)

Total volume: up +1% to 738.2Bn (HnB volume: +up 14.7% to 125.3Bn; cigarette volume: -1.4%)

Oral nicotine shipment volume: +16.8% to 799.3Mn cans

Smoke-free revenue: up +12.8% to $12.8Bn => 36.5% of total revenue

Business Highlights:

– Third consecutive year of volume growth driven by heated tobacco

– Combustibles: Net organic revenue growth of +5.3% in Q4 2023 and +5.5% in FY23, driven by pricing of +9.9% and +8.9% respectively. Volume down -1.9% in Q4 2023 and -1.4% in FY24

– Heated tobacco: Adj. in-market sales volume for heated tobacco (net of inventory movements) is up by +13.9% in Q4 2023 (Europe: +13.1%, Japan: +13.4%) and +14.8% (Europe: +17.6%; Japan: +14.5%) in FY23. The net unfavorable inventory movement impact in Q4 2023 (i.e. shipment growth lower than in-market sales growth) is driven primarily by Japan. The total number of IQOS users is up by +1.2Mn on sequential basis (vs. Sept 2023) to 28.6 Mn at the end of 2023 (up +3.7Mn vs. the end of 2022; 20.8Mn exclusive users).

– Oral smoke-free: ZYN launched or re-launched in 10 markets. ZYN nicotine pouch shipment volume in the US is 116.3Mn cans in Q4 2023 and 384.8Mn cans in FY23 (up by +78.2% and +62%, respectively). The US now has 91.4% weight in PMI’s total nicotine pouch shipments. ZYN’s explosive (and somewhat uncontrolled) growth in the US is good for business in the short-term, but its sustainability is a matter of concern. Recall: Nicotine Pouches

– Operating Income: Adj. OI Margin is down to 33.7% in Q4 2023 (-2.8pp reported; -0.1pp ex-FX & acquisitions) and is down to 37.8% in FY23 (-2.8pp reported; -1.5pp ex-FX & acquisitions). In FY23, cost of sales increased by +8.4% (due to inflationary impacts related to direct materials, tobacco leaf and energy, partly offset by productivity, and unfavorable volume/mix). Higher OPEX (Marketing, Administration and Research costs), impact of lower fees for certain distribution rights and lower commercial investments in FY22 (comparison base) are the other drivers of the margin squeeze.

FY24 Guidance

– Reported EPS: in a range of $5.90 to $6.02 (vs. $5.02 in 2023)

– FY24 adjustments: $0.42/share amortization of intangibles (mostly related to the IQOS commercialization rights in the US) and $0.11/share adverse FX impact (note: these adjustments are “business as usual” for PMI. Actually, without these adjustments, PMI’s EPS is flat for more than a decade now. Recall: PMI: Not All Roses)

– Adj. EPS: in a range of $6.43 to $6.55 (i.e. 7%-9% growth vs. $6.01 in 2023)

FY24 Assumptions

– Industry volume decline for cigarettes and heated tobacco (ex-China and the US): -2% to flat

– Total cigarette, HTP and oral smoke-free product shipment volume growth for PMI: flat to +1%

– Heated tobacco in-market sales growth: 14% to 16%, including 2Bn units adverse impact from consumer adjustment to the EU characterizing flavor ban, and essentially no growth in Russia

– Heated tobacco volume: more than 140Bn sticks (i.e. lower than the “~145Bn sticks” that could convince the market. Recall: PMI – Q4 2023 Results: Preview)

– Nicotine pouch shipment volume in the US: 520Mn cans

– Net revenue growth: 6.5% to 8%; Operating income growth: 8% to 9.5%

– Smoke-free net revenue: close to $15Bn

– Net financing costs: $1.3-$1.4 Bn

– Effective tax rate: 21% to 22%

– Operating cash flow: $10 to $11Bn; CAPEX: $1.2Bn, partly reflecting investments in ZYN capacity in the US

– Net debt to EBITDA ratio improvement of 0.3x to 0.5x in pursuit of a ratio of ~2x by the end of 2026

– Q1 2024 EPS: $1.37 to $1.42, including an estimated adverse FX impact of 10 cents

– Q1 2024 HTP shipment: 31-32Bn

– Amortization of intangibles ($0.42/share): IQOS commercialization rights in the US (i.e. agreement to end commercial relationship with Altria) => $370Mn in 2024 and $555Mn per year in 2025-28


PMI is the strongest tobacco franchise in the world – in terms of portfolio (Marlboro, IQOS, ZYN) and geographical mix (- significant presence in all developed and emerging markets). However, this strength comes at a cost. For instance,

– strong exposure to the emerging markets is supportive of combustible volume, but results in continuous adverse FX adjustments as well operational/political challenges

– transformation to NGPs is 40% completed (there is no other major tobacco company that is even remotely close to this figure), but transformation implies higher CAPEX and OPEX (- “higher” is OK, “reckless” is not)

– the more the NGP grows, the more restrictive regulatory & fiscal conditions become.

Market has a list of concerns about the PMI’s business performance – including operating margin squeeze, slow-down in heated tobacco growth, sustainability of the explosive (somewhat uncontrolled) ZYN growth in the US and bottomless EPS adjustments. We mark the FY23 Earnings release as another occasion in which PMI Management failed to calm down the market concerns – a prerequisite for PMI shares to start moving towards the desired valuation: a sustainable consumer goods business with consistent, mid/high single-digit EPS growth – such as Pepsi, Coca-Cola, P&G and others.


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