Tobacco company says concerns should increase sales of heat-not-burn device
By Jennifer Maloney and Allison Prang
Tobacco giant Philip Morris International Inc. says vaping fears in U.S. should give a boost to the recent launch of its IQOS smoking alternative.
IQOS, a device that heats tobacco sticks but doesn't burn them, is already sold in dozens of other countries. It went on sale in the U.S. last month. After a review, the Food and Drug Administration said earlier this year that it would allow Philip Morris and its partner Altria Group Inc. to market IQOS to adult smokers.
The U.S. tobacco market has been upended by a surge in vaping driven in large part by the popularity of e-cigarettes such as those made by startup Juul Labs Inc. A jump in underage vaping has prompted the FDA to prepare a crackdown on most flavored products. At the same time, a deadly lung illness, which has mostly affected people vaping THC products, has dampened the outlook for vaping.
"It's early days, but we have heightened expectations given the news flow that's happened in the U.S. if you're a smoker and considering alternatives," Philip Morris finance chief Martin King said on a conference call Thursday with analysts. He noted IQOS is the only heat-not-burn tobacco product with FDA authorization.
Since IQOS doesn't burn tobacco, the device doesn't produce smoke when users inhale. It heats tobacco sticks that come in regular and menthol flavors. It differs from other smoking alternatives such as e-cigarettes that produce vapor from nicotine-laced liquid.
Philip Morris and Altria abandoned merger talks last month amid shareholder opposition to the potential blockbuster deal. Altria sells Marlboros in the U.S.; Philip Morris sells them elsewhere. The two companies were split apart in 2008.
"We... got pretty clear feedback from our shareholders with a lot of questions about whether this would make sense, and shareholders feeling that they could, if they wanted to be exposed to the U.S. market, buy Altria separately," Mr. King said. "They didn't need PMI to do that."
Philip Morris estimates there were about 12.4 million IQOS users world-wide as of the end of its latest quarter, which as been on sale for several years in Asia and Europe. The company continues to expect total industry cigarette volumes this year to decline about 2.5%, excluding China and the U.S.
On Thursday, Philip Morris lowered its profit expectations for the year and reported lower profit in the third quarter after a Russian tax authority concluded the company's Russian affiliate underpaid in taxes.
The company said it now expects earnings for 2019 to be at least $4.73 a share. It had projected at least $4.94 a share. Analysts polled by FactSet are expecting $5.04 a share.
Earnings in the third quarter were $1.9 billion, down 16% from the comparable quarter a year earlier. The latest period included a $374 million tax charge in Russia.
Net revenue was $7.64 billion, up 1.8%. The company said that shipment volume of cigarettes and heated tobacco units declined by a little more than 2%.
Shares of Philip Morris were down 0.2% to $78.98 in early afternoon trading.
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