The Cigarette Pays for Its ReplacementWide moat

Philip Morris International (PM) — moat facet

PMI says it wants to end cigarette sales, and cigarettes still produce about 57% of its gross profit to pay for that ambition.

PMI's strategy is unusually candid about the role of its oldest business. The company describes its aim as "maximizing the value of the combustibles business over time to support smoke-free growth"1, and it states a goal of "completely ending the sale of cigarettes"2. The cigarette is to be milked, not grown.

Segment gross profit, 2025 ($M)International Combustibles 15,523 — 57%International Smoke-Free 9,576 — 35%U.S. 2,206 — 8%PMI recast schedules, 8-K March 2026
The old business still earns most of the profit.

It is still most of the milk. International Combustibles produced $15,523 million of gross profit in 20253, about 57% of the segments' total4, on $23,436 million of revenue5. That cash paid for the more than $16 billion PMI has invested in smoke-free since 20086, the Swedish Match purchase and a dividend of $8,624 million in 20257.

This is the logic of the whole company. A declining business with pricing power throws off cash, and PMI uses the cash to build the business that replaces it. The risk in the model is timing: if cigarettes decline faster than smoke-free profits grow, the funding gap has to be filled by debt.

For now the timing works. Smoke-free profit is growing faster than combustible profit is shrinking; in fact combustible gross profit is still growing, 11.1% over two years8.

The combustibles business is doing exactly what the strategy needs. Its gross profit tells the story first; a first year of decline while smoke-free is still under half of gross profit would mean the handover has started before the new business is ready to carry the dividend.

Moat trajectory: Holding steady

Combustible gross profit still growing; smoke-free share rising.

The number that tests this moat
Moat Explorer calc
International Combustibles share of segment gross profit
About 57% (2025: $15,523M of $27,304M)

How much of the company the old business still carries; falling faster than smoke-free profit grows would open a funding gap.

How it's calculated: International Combustibles gross profit divided by the sum of segment gross profit, from PMI's recast schedules for 2025.
Source: Moat Explorer calculation from PMI filings ↗
⚠ Threats to the moat
⚠ THREAT 01
The Health-Cost Lawsuits Still Open
Canada's settlement is done, but health-care cost cases in Brazil, South Korea and Nigeria are still open.
References
  1. ReportedThe company describes its aim as "maximizing the value of the combustibles business over time to support smoke-free growth", and it states a goal of "completely ending the sale of cigarettes".
    Philip Morris International release on its new organisational model, 4 November 2025. — November 2025 · publ. 4 November 2025 · source ↗
  2. ReportedThe company describes its aim as "maximizing the value of the combustibles business over time to support smoke-free growth", and it states a goal of "completely ending the sale of cigarettes".
    Philip Morris International Form 10-K for fiscal 2025 - Item 1 business: markets, products, competitors, market shares, shipments and employees. — FY2025 · publ. 6 February 2026 · source ↗
  3. ReportedInternational Combustibles produced $15,523 million of gross profit in 2025, about 57% of the segments' total, on $23,436 million of revenue.
    Philip Morris International Form 8-K exhibit 99.1 - 2025 and 2024 results recast into the new segments International Smoke-Free, International Combustibles and U.S. — FY2025 · publ. 13 March 2026 · source ↗
  4. Moat Explorer calcInternational Combustibles produced $15,523 million of gross profit in 2025, about 57% of the segments' total, on $23,436 million of revenue.
    Moat Explorer calculation from Philip Morris International's reported figures ($ millions unless stated). Excise and revenue 2025: 53,211 / 40,648 = 1.31 dollars of excise per dollar of net revenue; gross of excise 53,211 + 40,648 = 93,859, excise share 53,211 / 93,859 = 56.7%; excise growth 2023-2025 53,211 / 49,404 - 1 = 7.7% against net revenue growth 40,648 / 35,174 - 1 = 15.6%. Product mix 2025: smoke-free 16,854 / 40,648 = 41.5%; combustible 23,794 / 40,648 = 58.5%; smoke-free 2023 12,840 / 35,174 = 36.5%, 2024 14,660 / 37,878 = 38.7%; smoke-free growth 2023-2025 16,854 / 12,840 - 1 = 31.3%; smoke-free revenue 2016 733 to 2025 16,854 = 23 times. Segments 2025: International Smoke-Free 13,996 / 40,648 = 34.4%; International Combustibles 23,436 / 40,648 = 57.7%; U.S. 3,216 / 40,648 = 7.9%; recast gross profit shares 9,576 / 27,304 = 35.1%, 15,523 / 27,304 = 56.9%, 2,206 / 27,304 = 8.1%. Growth 2025: ISF 13,996 / 12,126 - 1 = 15.4%; IC 23,436 / 22,807 - 1 = 2.8%; U.S. 3,216 / 2,944 - 1 = 9.2%. Growth 2024: ISF 12,126 / 11,102 - 1 = 9.2%; IC 22,807 / 21,903 - 1 = 4.1%; U.S. 2,944 / 2,169 - 1 = 35.7%. IC gross profit 15,523 / 13,972 - 1 = 11.1% against IC revenue 23,436 / 21,903 - 1 = 7.0% (2023-2025). Recast reported gross margins 2023: ISF 7,021 / 11,102 = 63.2%, IC 13,972 / 21,903 = 63.8%; 2024: ISF 7,831 / 12,126 = 64.6%, IC 14,687 / 22,807 = 64.4%. Segment sum 2024 12,126 + 22,807 + 2,944 = 37,877 against 37,878 reported. IC shares of net revenues 21,903 / 35,174 = 62.3% (2023), 22,807 / 37,878 = 60.2% (2024). U.S. revenue 3,216 / 2,169 - 1 = 48.3% (2023-2025). Q2 2026 shares: ISF 3,877 / 11,192 = 34.6%, IC 6,459 / 11,192 = 57.7%, U.S. 856 / 11,192 = 7.6%. U.S. gross margin Q2 2026 555 / 856 = 64.8% against 611 / 862 = 70.9%. Swedish Match: 14,460 + 1,495 + 883 = 16,838 total cash paid; U.S. adjusted operating companies income 1,124 / 16,838 = 6.7% pre-tax; reported U.S. OCI 322 / 3,216 = 10.0% of U.S. revenue; adjusted 1,124 / 3,216 = 35.0%. Goodwill and other intangibles 17,264 + 10,884 = 28,148, 28,148 / 69,185 = 40.7% of total assets. Volumes: cigarettes 607,367 / 616,827 - 1 = -1.5% (2025), 607,367 / 612,949 - 1 = -0.9% (2023-2025); heated tobacco units 155,133 / 139,743 - 1 = 11.0% (2025), 139,743 / 125,263 - 1 = 11.6% (2024); HTUs 155,133 / (607,367 + 155,133) = 20.3% of cigarette plus HTU shipments. U.S. ZYN cans 793.7 / 384.8 = 2.06 times (2023-2025), 793.7 / 580.5 - 1 = 36.7% (2025); international nicotine pouches 879.6 - 793.7 = 85.9 million cans (2025), 644.0 - 580.5 = 63.5 (2024); snus 227.9 / 240.4 - 1 = -5.2% (2023-2025); e-vapor 3,330 / 1,651 = 2.0 times. U.S. segment: cigars 358 / 410 - 1 = -12.7%, 358 / 431 - 1 = -16.9% (2023-2025); wellness 238 / 333 - 1 = -28.5%. Cash and dividends: free cash flow 12,233 - 1,569 = 10,664 (2025), 12,217 - 1,444 = 10,773 (2024), 9,204 - 1,321 = 7,883 (2023); dividends paid / free cash flow 8,624 / 10,664 = 80.9% (2025), 8,197 / 10,773 = 76.1% (2024), 7,964 / 7,883 = 101.0% (2023). Payout of declared dividends per share over diluted EPS: 5.64 / 7.26 = 77.7% (2025), 5.30 / 4.52 = 117.3% (2024), 5.14 / 5.02 = 102.4% (2023); over adjusted EPS 5.64 / 7.54 = 74.8%. Annualised dividend 1.60 x 4 = 6.40; 6.40 / 5.64 = 1.13; dividend 5.64 / 1.54 = 3.7 times since 2008; yield 6.40 / 190.48 = 3.4%. R&D 756 / 40,648 = 1.9% of revenue; capex 1,569 / 40,648 = 3.9%. Customers: two customers 12% + 10% = 22% of 2025 net revenues; related-party revenue 4,582 / 40,648 = 11.3%; Megapolis 2,805 / 40,648 = 6.9%; Megapolis growth 2,805 / 2,393 - 1 = 17.2%. Japan 4.2 / 40.6 = 10.3% of net revenues. Canada: RBH carrying value 3,280 fair value at deconsolidation to 51 at 30 June 2026; impairments 2,316 + 511 = 2,827. Valuation: trailing twelve months to June 2026 revenue 40,648 + 21,338 - 19,441 = 42,545; net earnings 11,348 + 5,255 - 5,729 = 10,874; P/E 296.88 / 10.874 = 27.3; P/S 296.88 / 42.545 = 6.98; 2018 P/E 103.78 / 7.911 = 13.1; 2025 P/E 249.68 / 11.348 = 22.0; free cash flow yield 10,664 / 296,880 = 3.6%. Other PMI cigarette brands: 25.4 - 9.8 = 15.6% (2023), 25.3 - 10.7 = 14.6% (2025), a loss of 1.0 point against Marlboro's gain of 0.9. Excise Q2 2026 14,973 / 13,272 - 1 = 12.8% against net revenues 11,192 / 10,140 - 1 = 10.4%. U.S. smoke-free H1 1,584 - 1,311 = 273 decline. ISF H1 2026 gross margin 5,400 / 7,713 = 70.0%. Gross margin 2025 27,282 / 40,648 = 67.1%. ROIC average 2015-2025 (45.6 + 50.2 + 43.4 + 50.7 + 48.7 + 52.1 + 57.2 + 40.6 + 26.8 + 28.6 + 32.5) / 11 = 43.3%. Employees 84,900 - 82,700 = 2,200 (2023-2025); net revenues 40,648 - 35,174 = 5,474, about 5.5 billion. Snus 240.4 - 227.9 = 12.5 million cans. Europe smoke-free 8,127 / 16,854 = 48.2%, about half. Cigarette decline 2% to 3% of 607,367 = 12,147 to 18,221 million units. Operating cash flow over R&D 12,233 / 756 = 16.2 times. Blocked markets 440 / 2,587 = 17%, about a sixth. Market cap against peers 296.88 / 119.41 = 2.5 times British American Tobacco; 296.88 / 114.91 = 2.6 times Altria. Net debt to adjusted EBITDA 43,963 / 17,375 = 2.53. Interest 966 / 14,892 = 6.5% of operating income. Guidance midpoints: (8.35 + 8.50) / 2 = 8.43, reported (7.28 + 7.43) / 2 = 7.36, gap 8.43 - 7.36 = 1.07; earlier adjusted midpoints (8.38 + 8.53) / 2 = 8.46, (8.31 + 8.46) / 2 = 8.39, (8.26 + 8.41) / 2 = 8.34; 8.43 / 7.54 - 1 = 11.8% - revenue mix, segment shares and customer concentration. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in PMI's Forms 10-K and 10-Q, the recast segment schedules, results releases and market data; operands shown in the source line.
  5. ReportedInternational Combustibles produced $15,523 million of gross profit in 2025, about 57% of the segments' total, on $23,436 million of revenue.
    Philip Morris International Form 8-K exhibit 99.1 - 2025 and 2024 results recast into the new segments International Smoke-Free, International Combustibles and U.S. — FY2025 · publ. 13 March 2026 · source ↗
  6. ReportedThat cash paid for the more than $16 billion PMI has invested in smoke-free since 2008, the Swedish Match purchase and a dividend of $8,624 million in 2025.
    Philip Morris International Form 10-K for fiscal 2025 - financial statements and notes: income statement, excise, cash flow, debt, acquisitions and impairments. — FY2025 · publ. 6 February 2026 · source ↗
  7. ReportedThat cash paid for the more than $16 billion PMI has invested in smoke-free since 2008, the Swedish Match purchase and a dividend of $8,624 million in 2025.
    Philip Morris International Form 10-K for fiscal 2025 - financial statements and notes: income statement, excise, cash flow, debt, acquisitions and impairments. — FY2025 · publ. 6 February 2026 · source ↗
  8. Moat Explorer calcSmoke-free profit is growing faster than combustible profit is shrinking; in fact combustible gross profit is still growing, 11.1% over two years.
    Moat Explorer calculation from Philip Morris International's reported figures ($ millions unless stated). Excise and revenue 2025: 53,211 / 40,648 = 1.31 dollars of excise per dollar of net revenue; gross of excise 53,211 + 40,648 = 93,859, excise share 53,211 / 93,859 = 56.7%; excise growth 2023-2025 53,211 / 49,404 - 1 = 7.7% against net revenue growth 40,648 / 35,174 - 1 = 15.6%. Product mix 2025: smoke-free 16,854 / 40,648 = 41.5%; combustible 23,794 / 40,648 = 58.5%; smoke-free 2023 12,840 / 35,174 = 36.5%, 2024 14,660 / 37,878 = 38.7%; smoke-free growth 2023-2025 16,854 / 12,840 - 1 = 31.3%; smoke-free revenue 2016 733 to 2025 16,854 = 23 times. Segments 2025: International Smoke-Free 13,996 / 40,648 = 34.4%; International Combustibles 23,436 / 40,648 = 57.7%; U.S. 3,216 / 40,648 = 7.9%; recast gross profit shares 9,576 / 27,304 = 35.1%, 15,523 / 27,304 = 56.9%, 2,206 / 27,304 = 8.1%. Growth 2025: ISF 13,996 / 12,126 - 1 = 15.4%; IC 23,436 / 22,807 - 1 = 2.8%; U.S. 3,216 / 2,944 - 1 = 9.2%. Growth 2024: ISF 12,126 / 11,102 - 1 = 9.2%; IC 22,807 / 21,903 - 1 = 4.1%; U.S. 2,944 / 2,169 - 1 = 35.7%. IC gross profit 15,523 / 13,972 - 1 = 11.1% against IC revenue 23,436 / 21,903 - 1 = 7.0% (2023-2025). Recast reported gross margins 2023: ISF 7,021 / 11,102 = 63.2%, IC 13,972 / 21,903 = 63.8%; 2024: ISF 7,831 / 12,126 = 64.6%, IC 14,687 / 22,807 = 64.4%. Segment sum 2024 12,126 + 22,807 + 2,944 = 37,877 against 37,878 reported. IC shares of net revenues 21,903 / 35,174 = 62.3% (2023), 22,807 / 37,878 = 60.2% (2024). U.S. revenue 3,216 / 2,169 - 1 = 48.3% (2023-2025). Q2 2026 shares: ISF 3,877 / 11,192 = 34.6%, IC 6,459 / 11,192 = 57.7%, U.S. 856 / 11,192 = 7.6%. U.S. gross margin Q2 2026 555 / 856 = 64.8% against 611 / 862 = 70.9%. Swedish Match: 14,460 + 1,495 + 883 = 16,838 total cash paid; U.S. adjusted operating companies income 1,124 / 16,838 = 6.7% pre-tax; reported U.S. OCI 322 / 3,216 = 10.0% of U.S. revenue; adjusted 1,124 / 3,216 = 35.0%. Goodwill and other intangibles 17,264 + 10,884 = 28,148, 28,148 / 69,185 = 40.7% of total assets. Volumes: cigarettes 607,367 / 616,827 - 1 = -1.5% (2025), 607,367 / 612,949 - 1 = -0.9% (2023-2025); heated tobacco units 155,133 / 139,743 - 1 = 11.0% (2025), 139,743 / 125,263 - 1 = 11.6% (2024); HTUs 155,133 / (607,367 + 155,133) = 20.3% of cigarette plus HTU shipments. U.S. ZYN cans 793.7 / 384.8 = 2.06 times (2023-2025), 793.7 / 580.5 - 1 = 36.7% (2025); international nicotine pouches 879.6 - 793.7 = 85.9 million cans (2025), 644.0 - 580.5 = 63.5 (2024); snus 227.9 / 240.4 - 1 = -5.2% (2023-2025); e-vapor 3,330 / 1,651 = 2.0 times. U.S. segment: cigars 358 / 410 - 1 = -12.7%, 358 / 431 - 1 = -16.9% (2023-2025); wellness 238 / 333 - 1 = -28.5%. Cash and dividends: free cash flow 12,233 - 1,569 = 10,664 (2025), 12,217 - 1,444 = 10,773 (2024), 9,204 - 1,321 = 7,883 (2023); dividends paid / free cash flow 8,624 / 10,664 = 80.9% (2025), 8,197 / 10,773 = 76.1% (2024), 7,964 / 7,883 = 101.0% (2023). Payout of declared dividends per share over diluted EPS: 5.64 / 7.26 = 77.7% (2025), 5.30 / 4.52 = 117.3% (2024), 5.14 / 5.02 = 102.4% (2023); over adjusted EPS 5.64 / 7.54 = 74.8%. Annualised dividend 1.60 x 4 = 6.40; 6.40 / 5.64 = 1.13; dividend 5.64 / 1.54 = 3.7 times since 2008; yield 6.40 / 190.48 = 3.4%. R&D 756 / 40,648 = 1.9% of revenue; capex 1,569 / 40,648 = 3.9%. Customers: two customers 12% + 10% = 22% of 2025 net revenues; related-party revenue 4,582 / 40,648 = 11.3%; Megapolis 2,805 / 40,648 = 6.9%; Megapolis growth 2,805 / 2,393 - 1 = 17.2%. Japan 4.2 / 40.6 = 10.3% of net revenues. Canada: RBH carrying value 3,280 fair value at deconsolidation to 51 at 30 June 2026; impairments 2,316 + 511 = 2,827. Valuation: trailing twelve months to June 2026 revenue 40,648 + 21,338 - 19,441 = 42,545; net earnings 11,348 + 5,255 - 5,729 = 10,874; P/E 296.88 / 10.874 = 27.3; P/S 296.88 / 42.545 = 6.98; 2018 P/E 103.78 / 7.911 = 13.1; 2025 P/E 249.68 / 11.348 = 22.0; free cash flow yield 10,664 / 296,880 = 3.6%. Other PMI cigarette brands: 25.4 - 9.8 = 15.6% (2023), 25.3 - 10.7 = 14.6% (2025), a loss of 1.0 point against Marlboro's gain of 0.9. Excise Q2 2026 14,973 / 13,272 - 1 = 12.8% against net revenues 11,192 / 10,140 - 1 = 10.4%. U.S. smoke-free H1 1,584 - 1,311 = 273 decline. ISF H1 2026 gross margin 5,400 / 7,713 = 70.0%. Gross margin 2025 27,282 / 40,648 = 67.1%. ROIC average 2015-2025 (45.6 + 50.2 + 43.4 + 50.7 + 48.7 + 52.1 + 57.2 + 40.6 + 26.8 + 28.6 + 32.5) / 11 = 43.3%. Employees 84,900 - 82,700 = 2,200 (2023-2025); net revenues 40,648 - 35,174 = 5,474, about 5.5 billion. Snus 240.4 - 227.9 = 12.5 million cans. Europe smoke-free 8,127 / 16,854 = 48.2%, about half. Cigarette decline 2% to 3% of 607,367 = 12,147 to 18,221 million units. Operating cash flow over R&D 12,233 / 756 = 16.2 times. Blocked markets 440 / 2,587 = 17%, about a sixth. Market cap against peers 296.88 / 119.41 = 2.5 times British American Tobacco; 296.88 / 114.91 = 2.6 times Altria. Net debt to adjusted EBITDA 43,963 / 17,375 = 2.53. Interest 966 / 14,892 = 6.5% of operating income. Guidance midpoints: (8.35 + 8.50) / 2 = 8.43, reported (7.28 + 7.43) / 2 = 7.36, gap 8.43 - 7.36 = 1.07; earlier adjusted midpoints (8.38 + 8.53) / 2 = 8.46, (8.31 + 8.46) / 2 = 8.39, (8.26 + 8.41) / 2 = 8.34; 8.43 / 7.54 - 1 = 11.8% - growth rates, volumes, margins and excise. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in PMI's Forms 10-K and 10-Q, the recast segment schedules, results releases and market data; operands shown in the source line.
Sources
Generated September 26, 2026