Philip Morris' shares hit as ZYN falls behind high sales expectations

(Reuters) -Marlboro maker Philip Morris International missed second-quarter revenue expectations on Tuesday as shipments of its ZYN nicotine pouches disappointed.

Shares in the world's largest tobacco company by market capitalization dropped about 7% in New York trade even as the company raised its full-year profit guidance.

PMI has been faster than its peers to transition from traditional tobacco products to smoking alternatives such as ZYN, which has grown rapidly to become PMI's star product and by far the U.S. market leader.

CEO Jacek Olczak told Reuters that he wants ZYN, which is expanding internationally, to become the dominant pouch brand much like the company's Marlboro label was to cigarettes.

"I want to continue to be a leader," he said, adding that in markets where the nicotine pouch category is less developed, this can be achieved in just one or two years.

British American Tobacco's Velo is currently the No. 1 nicotine pouch brand globally.

While PMI's total sales rose 7.1% to $10.14 billion in the second quarter, they fell short of analysts' average estimate of $10.33 billion, as per data compiled by LSEG.

Volumes in PMI's nicotine pouch business rose 23.8%.

However, ZYN shipments of 190 million cans were behind the 203 million expected by analysts, Bernstein's Callum Elliot said in a note, adding that PMI's strong performance in recent quarters has led investors to set high expectations.

"These numbers risk being not quite 'good enough' for the higher bar that PMI is likely to be held to today," he wrote.

PMI said it also saw steady growth in inhalable alternative nicotine products, notably its flagship heated tobacco device IQOS.

The company said this, as well as a "resilient" performance in cigarettes and record net revenues, meant it would raise its full-year guidance.

It now expects an adjusted profit of $7.43 to $7.56 per share for the year, compared with its prior forecast of $7.36 to $7.49.

Its second-quarter adjusted profit of $1.95 per share beat market estimates of $1.86 per share.

The company aims to generate two-thirds of its net revenues from smoking alternatives by 2030.

(Reporting by Anuja Bharat Mistry in Bengaluru and Emma Rumney in London; Editing by Shinjini Ganguli, Savio D'Souza, Kirsten Donovan, Susan Fenton and Mark Porter)