(Reuters) -Marlboro-maker Philip Morris International (PMI) on Tuesday reported second-quarter revenue behind expectations as cigarette sales slipped and shipments of its ZYN nicotine pouches fell short of forecasts.
Shares in the world’s largest tobacco company by market capitalisation dropped about 5% in premarket trading.
PMI has been faster than its peers to transition from traditional tobacco products to smoking alternatives, such as ZYN, the rapid growth of which has seen it become PMI’s star product.
Cigarettes, however, remain the main engine of PMI’s business, and are in decline. PMI also faces regulatory headwinds and tough economic conditions have hit consumers’ wallets.
While PMI’s total sales rose 7.1% to $10.14 billion in the latest quarter, they fell short of analysts’ average estimate of $10.33 billion, as per data compiled by LSEG.
Shipment volumes in its cigarettes business declined 1.5%, while, in contrast, volumes in PMI’s nicotine pouch business rose 23.8%.
ZYN shipments of 190 million cans were behind the 203 million expected by analysts, Bernstein’s Callum Elliot said in a note, adding that PMI’s strong performance in recent quarters has led investors to set high expectations.
“These numbers risk being not quite ‘good enough’ for the higher bar that PMI is likely to be held to today,” he wrote.
PMI also saw steady growth in inhalable alternative nicotine products, notably its flagship heated tobacco device IQOS, across Europe and Japan and cities such as Jakarta, Mexico and Seoul.
Earlier this year, PMI began selling IQOS on a small scale in the United States, a move that ultimately is expected to help fuel its push to diversify revenue streams beyond cigarettes.
The company aims to generate half of its sales from smoking alternatives by the end of 2025.
Its second-quarter adjusted profit of $1.95 per share beat market estimates of $1.86 per share.
It expects an adjusted profit of $7.43 to $7.56 per share for the year, compared with its prior forecast of $7.36 to $7.49.
(Reporting by Anuja Bharat Mistry in Bengaluru and Emma Rumney in London; Editing by Shinjini Ganguli and Savio D’Souza, Kirsten Donovan)
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