By Saabira Chaudhuri
Imperial Brands PLC became the first global tobacco maker to lay
out the financial impact of the U.S. crackdown on vaping products,
as the maker of Blu e-cigarettes warned sales and profit would be
lower than expected this year.
The disclosure from Imperial, which also sells traditional
Davidoff and Winston cigarettes, shows how President Trump's move
to ban most vaping products in the U.S. is already affecting the
broader industry.
Shares in Imperial dropped more than 10% and rival British
American Tobacco PLC, which also sells e-cigarettes in the U.S.,
drifted lower too.
The U.S. vaping market -- worth $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 an e-cigarette brand, Blu, in 2015 from Reynolds
American Inc., in a move that allowed the American company to
secure its $25 billion purchase of Lorillard Inc.
BAT, which now owns Reynolds, sells a rival device called
Vuse.
Until recently, vaping was seen as a major growth driver 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 now expects full-year sales growth of 2%, down from its
prior estimate of growth at the upper end of its 1% to 4% range. It
expects earnings per share growth to be flat, compared with its
medium-term guidance of 4% to 8%.
The company blamed a chunk of the drop on 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 market for prefilled e-cigarettes in the U.S.,
which was growing at about 13% in May, had slowed to 2% in August
and was now negative.
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 a rise in
teenage vaping as well as hundreds of potential cases of pulmonary
illness -- and even some deaths -- linked to vaping products, many
containing marijuana.
U.S. health officials viewed e-cigarettes as a safer alternative
to smoking and allowed vaping products to remain on the market
before they were reviewed by the Food and Drug Administration.
E-cigarette makers now face a May deadline to apply for a FDA
review of any vaping product they want to sell beyond that
date.
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 rivals BAT and
Philip Morris International Inc., which have rolled out
tobacco-heating devices in many countries, Imperial has focused on
vaping products, a larger and more developed next-generation
category it says holds the biggest opportunity.
Imperial said the regulatory actions had prompted a slowdown for
vaping products in recent weeks, with an increasing number of
wholesalers and retailers not ordering or allowing promotion of
vaping products.
It said it believed next-generation products still offered a
"significant opportunity" and estimated the business globally would
grow net revenue by around 50% this year. That compares with growth
of 245% for the first six months of the year.
RBC analyst James Edwardes Jones said the announcement had
significance for the tobacco industry at large.
"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 tobacco giants Altria Group
Inc., which owns a stake in Juul, and Philip Morris called off
merger talks in part because of regulatory uncertainty, while
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 vaping products
next year, but it was unclear exactly what restrictions the FDA was
preparing.
Altria and Philip Morris have said they would now focus on the
launch of their own joint cigarette alternative in the U.S., a
heat-not-burn tobacco device called IQOS. Unlike Juul, 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 U.S. illnesses. 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 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 26, 2019 10:46 ET (14:46 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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