Philip Morris International (NYSE:PMI) recently released its second-quarter financial results, which surpassed modest expectations, mainly attributed to robust volume in the core combustible segment. The company experienced low-double-digit organic net revenue growth, with a notable contribution from subsidiary Swedish Match, resulting in a year-over-year revenue growth of 1.5%. Despite this positive performance, PMI’s valuation premium to peers remains justified, offering a more defensive stance amidst potential global macroeconomic deterioration.

PMI’s second-quarter organic revenue growth reached 10.5%, driven by a 9% price increase and a remarkable 26.6% surge in heated tobacco unit volume, now representing 13% of total tobacco volume. Surprisingly, the combustible volume decline was minimal at just 0.4%, which exceeded expectations. PMI’s management suggests that industry volume within its footprint declined by 2.1% during the quarter, implying some market share gains. However, there are concerns about the potential reacceleration of PMI’s volume decline later in the year. Nevertheless, overall, it was a solid quarter considering the increasing pressure on consumers in most markets.

The acquisition of Swedish Match has proven to be fruitful, as the company made a strong start under PMI’s ownership, contributing to reported growth. On a pro forma basis, the shipment volume of oral products (primarily Swedish Match’s Zyn brand) surged by 13.8%, likely bolstered by greater distribution on the PMI platform and indicating the ongoing growth of this category. PMI boasts the strongest portfolio of non-cigarette brands, with Zyn in oral tobacco and Iqos in heated tobacco, which should help mitigate the impact of cigarette volume decline.

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