By Saabira Chaudhuri
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 27, 2019).
Imperial Brands PLC became the first global tobacco company to
lay out the financial impact of the U.S. crackdown on vaping
products, as the maker of Blu e-cigarettes warned its sales and
profit would be lower than expected this year.
The disclosure from Imperial, whose traditional cigarette brands
include Davidoff and Winston, shows how the Trump administration's
plans, announced earlier this month, to ban most vaping products in
the U.S. are already affecting the tobacco industry's fortunes.
Shares of Imperial fell 13% Thursday. The U.K.-based company's
approach to next-generation nicotine products is far more focused
on e-cigarettes than that of its major rivals.
The U.S. vaping market -- valued at $5.6 billion last year,
according to data provider Euromonitor -- is dominated by products
from e-cigarette startup Juul Labs Inc. However, big tobacco
companies have pushed into the category to offset the decline in
traditional cigarette sales.
Imperial bought the Blu e-cigarette brand in 2015 from Reynolds
American Inc., a deal that allowed Reynolds to clear its $25
billion purchase of Lorillard Inc. British American Tobacco PLC,,
which now owns Reynolds, sells a rival device called Vuse.
Until recently, vaping was seen as an opportunity for the
industry, but now its future looks uncertain in the U.S. and
elsewhere. India said last week it was banning the sale of all
e-cigarettes, while China has stopped online sales of Juul's
products.
Imperial expects full-year sales growth of 2%. It previously
pegged growth at the upper end of a range of 1% to 4%. Earnings per
share are expected to be flat, compared with the company's prior
forecast of 4% to 8% growth.
The company singled out the recent developments in the U.S.,
saying the vaping environment had "deteriorated considerably over
the last quarter with increased regulatory uncertainty, including
individual U.S. state actions."
Imperial said the U.S. market for prefilled e-cigarettes, which
was growing at about 13% in May, slowed to 2% growth in August and
was now negative. It said an increasing number of wholesalers and
retailers have stopped ordering or promoting vaping products
Citing a surge in underage vaping, the Trump administration said
in September it planned to ban all e-cigarettes except those
formulated to taste like tobacco. The move comes amid not only a
rise in teenage vaping but also hundreds of potential cases of
pulmonary illness -- and even some deaths -- linked to vaping
products, many containing marijuana.
U.S. health officials had viewed e-cigarettes as a safer
alternative to smoking, and vaping products were allowed to remain
on the market pending review by the Food and Drug Administration.
E-cigarette makers now face a May deadline to apply for a FDA
review of vaping products they want to continue selling.
Meanwhile, the FDA has asked consumers to avoid buying vaping
devices on the street and not to add substances to products bought
in stores.
For Imperial there is a lot at stake. Unlike BAT and Philip
Morris International Inc., which have rolled out tobacco-heating
devices they say are safer than conventional cigarettes, Imperial
has focused on vaping products, a more-developed next-generation
category it says has greater sales potential.
The company said it believed next-generation products still
offered a "significant opportunity." It estimated net revenue for
the business globally would grow about 50% this year, compared with
growth of 245% for the first six months of the year.
Next-generation products accounted for 5.4% of Imperial's
revenue in the Americas for the six months to March 31 at GBP61
million ($75.3 million).
RBC analyst James Edwardes Jones said Imperial's announcement
should concern investors.
"To the extent that it calls Imperial Brands' and the tobacco
industry's longer-term business model into question, we believe
that the implications should not be underestimated," he said.
Imperial's warning comes a day after Philip Morris and tobacco
giant Altria Group Inc., which owns a stake in Juul, called off
merger talks in part because of regulatory uncertainty. Also on
Wednesday, Juul's chief executive stepped down.
Altria CEO Howard Willard said the proposed U.S. ban on
e-cigarette flavors would hurt Juul's business and the sale of
vaping products next year, though it was unclear exactly what
restrictions the FDA was preparing.
Altria and Philip Morris have said they would now focus on
launching their joint cigarette alternative in the U.S. Unlike
Juul, their product -- a heat-not-burn tobacco device called IQOS
-- has been reviewed and authorized by the FDA.
BAT, which sells Camel and Newport, plans to file in the coming
weeks for an FDA review of Vuse, whose sales have been dwarfed by
Juul.
BAT's head of scientific research, David O'Reilly, said that as
far as he knew, no product developed or made by his company has
been involved in the illnesses reported in the U.S. He said
governments should pass regulation to improve product standards,
especially around testing and reporting of the ingredients used in
vaping liquids.
Japan Tobacco Inc., which sells its Logic e-cigarette brand in
the U.S., said it isn't aware of any its products being linked to
the U.S. illnesses and that it supports increased regulation.
Imperial has said all of its vaping products and ingredients
undergo thorough scientific assessment before manufacture and
sale.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
September 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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