Share

Vaping fallout: Imperial plunges on profit warning, on track for record decline

The US vaping crisis ensnared another tobacco company as Imperial Brands said earnings growth ground to a halt after a drastic slowdown in revenue from smoking alternatives.

The warning from the maker of Blu vaping devices adds to the fallout from a backlash against e-cigarettes that has already scuttled the biggest potential merger in the industry. Imperial’s shares plunged as much as 12% on Thursday, on track for a record decline.

"It calls Imperial Brands’ and the tobacco industry’s longer-term business model into question," said James Edwardes Jones, an analyst at RBC. "The implications should not be under-estimated."

Early signs of health risks, missed or ignored

Imperial’s warning comes a day after Altria Group abandoned talks on a possible merger with Philip Morris International and installed one of its own executives at the helm of embattled e-cigarette maker Juul Labs.

US health officials are scrambling to identify a mystery illness linked to vaping, denting prospects for what had become one of the biggest new growth markets in the industry. Consumers are now questioning the devices, touted to carry fewer health risks than traditional cigarettes.

Imperial Brands, the smallest of the major tobacco companies, has lost more than half its market value from a 2016 peak. With a tighter research budget than rivals, the company has struggled to keep up with devices such as Juul and Philip Morris’s IQOS, which heats tobacco without burning it. After years of shrugging off that market in favour of vaping products, Imperial recently introduced its first heated-tobacco device in Japan.

Pain, bumps

Imperial’s smoking-alternative business remains unprofitable but will move toward breaking even through 2020, Chief Executive Officer Alison Cooper said on a call with investors. The UK-based maker of Winston cigarettes said earnings per share were roughly flat at constant currencies and sales rose about 2% in the 12 months through September.

"It will be bumpy over the coming months, and there may be some short-term pain," Cooper said. Regulation will weed out the industry, leaving a few responsible companies, she added. "Therefore there will be a much better competitive environment."

The Trump administration said earlier this month that it would soon remove all flavoured e-cigarette nicotine pods from the market, and only allow them back in stores after they gained approval from the Food and Drug Administration. Several US states have moved to restrict vaping, and Walmart has decided to stop selling e-cigarettes in its home market.

Industry shudders

The entire industry has been shuddering, not just the small independent vape companies that may have a harder time dealing with stricter policies from the FDA. In the past month, British American Tobacco said that it plans to cut 2 300 jobs and Japan Tobacco announced it will eliminate 3 720 positions. BAT shares fell as much as 4.8% Thursday.

Imperial’s sales of smoking alternatives rose about 50% this fiscal year, slowing from the breakneck 200% pace of the first half. The company also cited a tougher market for tobacco in countries such as Australia.

Several potential buyers have expressed interest in its premium cigar business, Imperial also said. The company has put the unit up for sale as part of a plan to raise as much as $2.5bn (about R37bn) from asset disposals.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.93
+0.0%
Rand - Pound
23.90
+0.0%
Rand - Euro
20.40
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
-0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders