Philip Morris International (PMI) has lowered its full-year profit forecast for the third time in 2023, citing adverse currency fluctuations and increased competition in the United States as key factors impacting its performance. The tobacco company now anticipates adjusted earnings per share (EPS) between $8.26 and $8.41, down from previous guidance of up to $8.46 in May and $8.51 in April.

The company reported a 10.4% increase in revenue for the second quarter ending June, reaching $11.2 billion. Contrary to analyst predictions of declining demand, cigarette volumes increased by 1.1%, while growth in PMI’s expanding “smoke-free” product segment slowed compared to the prior quarter.

PMI attributed the recent downward revision in its profit outlook to unfavorable currency conditions and rising input costs related to the ongoing conflict in the Middle East, which has driven up expenses for transportation, energy, and other operational areas.

As part of its strategic shift toward reduced-risk products, PMI has invested heavily in alternatives to traditional smoking, including nicotine pouches and vaping devices. Its Zyn brand, acquired through the $16 billion purchase of Swedish Match in 2022, has been a major player in the US nicotine pouch market. However, newly intensified competition, notably from British American Tobacco’s Velo Plus, has contributed to slowing growth in this category. PMI described the US market as having an “uneven competitive landscape” and highlighted challenges arising from delayed approvals by the US Food and Drug Administration (FDA), which has limited the company’s access to some potent flavor and strength segments. In response, PMI launched a higher-strength version of Zyn, called Zyn Ultra, in June.

PMI’s efforts to expand its non-combustible product portfolio received regulatory support in June when the FDA authorized the company to market certain Zyn nicotine pouches as less harmful alternatives to cigarettes. The tobacco industry argues that supplying such products is essential to aid smokers in transitioning away from combustible tobacco. However, the World Health Organization has expressed concerns that these new products may also attract non-smokers, including younger users, rather than solely serving as cessation tools.

The evolving dynamics of the nicotine market, combined with geopolitical and economic headwinds, are shaping a complex environment for PMI as it balances traditional tobacco sales with its push into so-called “smoke-free” categories.