Philip Morris International isn't slowing down efforts to grow its Zyn nicotine-pouch brand, even as geopolitical tensions disrupt operations and pressure its earnings outlook.
The tobacco company said Wednesday it will continue to step up investments to support its Zyn brand, aiming to meet rising demand. In the recent quarter, U.S. shipments of the nicotine pouches climbed 4.2% to 3.2 billion pouches.
Beyond launching new products and variants, Philip Morris plans to transition most of Zyn's portfolio to 20-pouch cans from the current 15-pouch format, a move executives called a significant investment in consumer value. The company is also expanding its marketing efforts, preparing to launch a national Zyn brand campaign in the current quarter.
"We remain focused on further strengthening the brand, building consumer awareness of the expanded portfolio and continuing to invest behind the significant growth opportunity ahead," Chief Financial Officer Massimo Andolina said on a call with analysts.
At the same time, conflicts in the Middle East and Ukraine are creating additional challenges for Philip Morris.
Energy-related inflation stemming from the ongoing war in the Middle East drove incremental cost pressures during the recent quarter, while strikes on supply-chain and logistics infrastructure in Ukraine disrupted operations.
"While we are less exposed than many other areas of consumer goods, and this remains manageable overall, these factors were a headwind in the third quarter and are expected to evolve further in the fourth quarter," Andolina said.
The company's stepped-up investments, coupled with geopolitical headwinds, prompted Philip Morris to lower its earnings outlook for the year.
For the year, Philip Morris now expects earnings of $7.11 to $7.26 a share, or $8.29 to $8.44 a share on an adjusted basis, compared with a prior forecast for earnings of $7.28 to $7.43 a share, or $8.35 to $8.50 a share on an adjusted basis.
Shares fell 1.6% to $196.79 in midday trading Wednesday. Despite the decline, the stock is up nearly 23% year to date.
The revised outlook came as Philip Morris reported quarterly earnings of $2.12 a share, down from $2.23 a share the year prior. Adjusted earnings of $2.36 a share topped the $2.30 a share that analysts polled by FactSet expected.
Revenue rose 5.5% to $11.4 billion, ahead of Wall Street expectations of $11.32 billion. Total shipments increased 0.6%, driven by a 2.7% rise in smoke-free products.
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