Philip Morris International (Philip Morris (PM)) shares climbed Wednesday after the tobacco giant reported second-quarter results that comfortably beat Wall Street estimates, powered by its steadily growing smoke-free business.

Adjusted earnings per share came in at $2.20, above the $2.04 analysts were looking for. Net revenue rose 10.4% year over year to $11.19 billion, also topping expectations of $10.64 billion. Organic revenue grew 7.6%.

Reported diluted EPS, however, fell 7.7% to $1.80, largely because of a $511 million noncash impairment charge tied to PMI's investment in RBH — that's 33 cents per share. Strip that out, and the underlying picture looks solid.

Operating income jumped 22% to $4.53 billion, while adjusted operating income rose 12.4% to $4.77 billion. Adjusted operating margin expanded to 42.6% from 41.9%, and adjusted gross margin improved 70 basis points to 68.5%.

The Smoke-Free Engine

Total shipment volume increased 2.5% to 205.2 billion equivalent units. But the real story is the mix shift: smoke-free shipments rose 7.5%, led by 7.6% growth in heated tobacco units and a whopping 55.1% increase in e-vapor products. Cigarette shipments, by contrast, inched up just 1.1%.

Smoke-free products now account for about 42% of total revenue, up half a percentage point from a year ago, and are available in 109 markets. International smoke-free revenue grew 14.2% to $3.88 billion, with adjusted gross margin hitting 70.1%. IQOS adjusted in-market sales rose 5.1%, or 10% excluding Japan and Poland.

VEEV shipments surged 55.1%, and international modern oral product volumes increased 14.7% — or 26.3% excluding the Nordic markets. The combustibles side isn't dead yet: international revenue rose 9.8% to $6.46 billion, supported by 10% pricing growth, and Marlboro maintained a record 11% share of the international cigarette category.

U.S. Business and ZYN

U.S. revenue slipped 0.7% to $856 million, but ZYN shipments still grew 1.8% to 2.9 billion pouches. The company recently launched ZYN ULTRA and plans to roll out additional product variants and boost marketing investment in the second half of the year.

On the earnings call, management said it left full-year guidance largely unchanged despite a strong first half, choosing to reinvest behind ZYN. Early consumer response to ZYN ULTRA has been encouraging, though launch data is still limited.

The company also said it continues to prioritize IQOS volume growth over near-term pricing. Executives expect some volatility in Japan ahead of an October excise tax increase but believe the worst of the earlier tax-related disruption has passed. The conflict in the Middle East has had only a minor impact so far, mainly through higher transportation, energy and other input costs.

Outlook: Smoke-Free Will Offset Cigarette Declines

Philip Morris reiterated that smoke-free products should continue driving growth and largely offset declines in cigarette volumes. Management now expects total shipment volume to be stable to slightly positive for the full year, supported by high-single-digit smoke-free growth, while cigarette shipments are forecast to decline about 2% to 3%.

Executives said the performance and long-term potential of IQOS, ZYN and VEEV reinforce confidence in the company's smoke-free strategy.

PMI raised its reported EPS forecast for 2026 to $7.19-$7.34 from $7.18-$7.33, but that remains below the analyst consensus of $7.78. The company lowered its adjusted EPS outlook to $8.26-$8.41 from $8.31-$8.46, compared with the analyst estimate of $8.41. It expects third-quarter adjusted EPS of $2.20-$2.25, below the consensus estimate of $2.43.

PMI maintained its guidance for 5%-7% organic revenue growth and 7%-9% organic operating income growth. The company continues to expect operating cash flow of about $13.5 billion and capital expenditures of $1.4 billion-$1.6 billion, primarily to support smoke-free products. It also expects net debt-to-adjusted EBITDA to be about 2.0 times by year-end and does not plan to repurchase shares in 2026.

Price Action

Shares of Philip Morris were up 3.28% at $194.21 at the time of publication Wednesday, trading near their 52-week high of $194.90.