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Philip Morris International is spending more to expand its Zyn portfolio and meet rising demand for the nicotine pouches.
The tobacco company said Wednesday it is ramping investments in its U.S. business to keep Zyn’s spot as the go-to nicotine pouch for Americans. Philip Morris shipped new Zyn variants during the second quarter, and plans to roll out several more new products during the rest of the year.
“It’s going to be every lever we can pull to accelerate the growth of Zyn and leverage this new situation,” Chief Financial Officer Emmanuel Babeau told investors.
Philip Morris recorded higher sales in the second quarter, beating analyst estimates again after similar performance in the first quarter. Still, management maintained its full-year guidance to make room for the increased investments in Zyn.
Revenue rose 10% to $11.19 billion, ahead of analysts’ forecast of $10.60 billion.
Earnings were $1.80 a share, compared with $1.95 a share, a year earlier. Stripping out certain one-time items, adjusted per-share earnings were $2.20, ahead of the $2.03 anticipated by analysts, according to FactSet.
In the U.S., Zyn nicotine pouches led sales, with shipments increasing 1.8% to 2.9 billion pouches. That partially offset declines in cigar sales for an overall sales decline of 0.7% in the U.S.
In June, the company made its first shipments of Zyn Ultra and additional flavors within the Zyn dry flagship lineup. Philip Morris plans to add a 1.5mg and 8mg dry variant in the third quarter.
Along with the launch of new products, Philip Morris plans to spend more on marketing, distribution and in-store execution, executives said.
Philip Morris has been fighting to maintain its foothold in the nicotine pouch market because rival brands are offering lower prices, higher strength products and new flavors. Executives said the new products will help the company stay competitive.
“After several quarters of frustration, it’s a great moment,” Babeau said. “We are facing a very exciting moment in the U.S.”
Overall sales in Philip Morris’ smoke-free business increased 11.7%, while combustibles revenue was up 9.5%. The smoke-free business accounted for 42% of total sales.
Internationally, smoke-free sales jumped 14%. Cigarette volume grew in Turkey, Indonesia and Egypt, outweighing declines in other markets.
The Middle East conflict has had a minor impact on the business so far, mainly pushing up costs for transportation, energy and other inputs, Philip Morris said.
“While we have observed increased energy prices and some disruption in energy supply in a number of markets, it has not yet resulted in a discernible shift in consumer behavior,” the company said.
For the full year, the company is expecting adjusted earnings per share of $8.26 to $8.41, compared with the $8.36 a share analysts are forecasting.
Write to Katherine Hamilton at [email protected]