10-Q · July 24, 2026
PMI delivered strong Q2 operating performance, with revenue up 10.4% to $11.192 billion, gross margin expanding to 68.4%, and operating income increasing 22.0% to $4.530 billion. International Smoke-Free and…
Earnings analysis · 10-Q
PM earnings analysis
Filed October 23, 2026 · Our reading of the company's report
The latest report
PMI delivered solid third-quarter operating momentum: revenue increased 5.5% to $11.438 billion, gross margin expanded to 68.66%, and operating income rose 14.1% to $4.866 billion, led by pricing, International…
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PMI delivered solid third-quarter operating momentum: revenue increased 5.5% to $11.438 billion, gross margin expanded to 68.66%, and operating income rose 14.1% to $4.866 billion, led by pricing, International Combustibles, and a U.S. ZYN recovery. Reported EPS declined 4.9% to $2.12 because of unfavorable investment valuation effects and a higher tax rate, while operating cash flow improved to $10.445 billion year to date. The principal near-term concern is the planned ZYN packaging and investment transition, which management expects to produce an abnormally low level of U.S. profitability in Q4 2026.
From revenue to operating profit
Where each $100 of revenue went in this report.
Cost of sales, operating expenses, and what remained. Figures are rounded to whole dollars.
Where revenue came from
The business segments reported by the company.
Shares of the segments disclosed in this filing, largest first.
How we read each report
Our analysis across the last few reports.
Our model's reading of each filing, not the share price or the market's reaction. Annual and quarterly reports each occupy one position.
Reported figures
- Earnings per share
- $2.12
What stood out
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Revenue and gross margin expanded
Third-quarter net revenue was $11.438 billion, up 5.5% year over year and approximately 2.2% sequentially from $11.19 billion in Q2 2026. Gross profit increased 6.7% year over year to $7.854 billion, lifting gross margin to 68.66% from 67.88% in Q3 2025 and 68.4% in Q2 2026.
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Operating leverage was strong
Operating income rose 14.1% year over year to $4.866 billion, and operating margin increased to 42.54% from 39.31% in Q3 2025 and 40.5% in Q2 2026. The filing attributes the improvement partly to favorable pricing and the absence of the $176 million Germany excise-tax litigation charge recorded in Q3 2025.
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EPS declined on below-the-line items
Reported diluted EPS was $2.12, down 4.9% from $2.23 in Q3 2025, but up from $1.80 in Q2 2026. The year-over-year decline was driven in part by an $86 million loss from equity investments and securities versus $345 million of income in the prior-year quarter, as well as a 2.8 percentage-point increase in the effective tax rate to 21.5%.
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Combustibles delivered pricing growth
International Combustibles revenue grew 6.5% to $6.725 billion and gross profit grew 8.6% to $4.610 billion, primarily on favorable pricing and distribution-term changes. Cigarette shipment volume was broadly flat at 158.0 billion units, while Marlboro category share increased 0.5 percentage points to a record 11.4%.
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U.S. ZYN growth rebounded
The U.S. segment accelerated sharply, with revenue up 22.7% to $845 million and gross profit up 24.2% to $539 million. ZYN shipments increased 4.2% to 3.2 billion pouches in the quarter, despite comparison against a prior-year promotional campaign.
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Operating cash flow strengthened
Operating cash flow was $10.445 billion for the first nine months of 2026 versus $7.524 billion in the prior-year period. Management attributed the $2.8 billion favorable variance, excluding currency, primarily to $1.9 billion of lower working-capital requirements and $0.7 billion of pension-asset refunds.
What to watch
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ZYN transition pressures Q4 profitability
Management expects an abnormally low level of U.S. profitability in Q4 2026. The transition of most ZYN flagship products to 20-pouch cans is expected to result in approximately 25% less revenue per pouch, before considering additional retail support and capacity-expansion costs.
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U.S. year-to-date performance remains weak
U.S. revenue declined 5.2% to $2.324 billion for the first nine months, while U.S. gross profit fell 14.8% to $1.473 billion. Year-to-date U.S. oral smoke-free volume declined 5.8%, including a 6.0% decline in ZYN shipments to 8.4 billion pouches.
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RBH impairment and investment volatility
PMI recorded a $511 million non-cash impairment of its RBH equity investment, reducing diluted EPS by $0.33. Net earnings attributable to PMI fell 6.9% to $8.6 billion for the first nine months despite operating income increasing 15.4% to $13.289 billion.
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Russia creates asset and geopolitical risk
Russia represented approximately 7% of nine-month net revenue, and Russian operations held approximately $5.6 billion of assets, including $3.1 billion of cash and cash equivalents. PMI states that divestment or loss of access to Russian assets could result in material impairment; the company also holds a 23% interest in TKM.
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Energy inflation may intensify
Energy-related input prices created incremental cost pressure in Q3 2026, and management anticipates a slightly higher impact in Q4 2026. International Combustibles gross profit was also offset by $48 million of higher costs in the quarter.
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Smoke-free regulation and taxation
Regulatory and tax changes remain a material threat to smoke-free growth. Japan implemented the second step of HTP and cigarette excise-tax harmonization on October 1, 2026, while the proposed EU Tobacco Excise Directive contemplates implementation on January 1, 2028, with differentiated taxes for smoke-free products but potential additional taxation.
Management's outlook
The 10-Q does not provide new numeric EPS or revenue guidance. It does state that full-year 2026 total cigarette and smoke-free shipment volume is expected to grow, with high-single-digit smoke-free shipment growth; operating cash flow is expected to be around $13.5 billion and capital expenditures are expected to be $1.4-$1.6 billion. Management expects an abnormally low level of U.S. profitability in Q4 2026 due to ZYN investments and the transition to 20-pouch cans, which translates into approximately 25% less revenue per pouch, all else equal.
Earlier filings 2
10-Q · April 24, 2026
Philip Morris reported quarterly net revenues of $10.146 billion and adjusted diluted EPS of $1.96, both beating consensus (est. EPS $1.82; est. revenue $9.8418B). Management pointed to continued strength in smoke‑free…
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