Media Moves

Coverage: Philip Morris tanks on lower cigarette sales

April 20, 2018

Posted by Chris Roush

Screen Shot 2018-04-19 at 8.14.21 PMShares in the cigarette giant Philip Morris International plunged as much as 18 percent after its latest earnings report showed that $4.5 billion spent on four new products are failing to win over new customers.

Jennifer Kaplan of Bloomberg News had the story:

Philip Morris, which sells Marlboros outside the U.S., reported revenue excluding excise taxes of $6.9 billion, less than the $7.03 billion projected by analysts in a Bloomberg survey. The share decline, to as low as $83.50, was the biggest since the company split from Altria Inc. in 2008. The stock had fallen 4 percent this year through Wednesday’s close of trading.

As global smoking rates decline, tobacco companies are trying to keep up performance by boosting prices and introducing new products. Philip Morris has introduced iQos into 38 markets. Chief Executive Officer Andre Calantzopoulos has said he envisions a world where all 1 billion smokers have moved away from cigarettes to less harmful sources of nicotine.

Optimism around new products was bolstered by iQos’ early success in Japan. While growth rates there were hampered by supply chain issues, demand would rise to meet higher supply once those problems were solved, Philip Morris previously said.

Angelica LaVito of reported that the company’s market share in Japan has leveled off:

Since launching in Japan in late 2014, PMI has reached 16 percent of market share, which “is absolutely phenomenal,” King said.

“It was just an issue of whether this torrid pace of growth would continue uninterrupted or whether we would hit some points at which we need to adjust a bit and approach consumers in a little bit different manner,” he said.

Because PMI isn’t seeing a surge in device sales, sales of Heatsticks, tobacco sticks that go inside the iQOS device, “are likely to be a little bit lower” than it forecast at the end of last year. If the situation in Japan persists, he said, then the volume of heated tobacco unit sales will be closer to the range of 55 billion to 60 billion instead of the previously estimated 60 billion.

“It’s hard to say exactly at this point. We don’t know how this trend or the dynamics is going to develop, but we’re just calling out kind of a more cautious situation to give us the time and the resources to tackle these different consumer segments in the right way,” he said.

Richard Craver of the Winston-Salem Journal reported that RJ Reynolds is examining the market with a new product:

Currently, there are very limited sales of heat-not-burn cigarettes in the United States, mostly the Eclipse brand by R.J. Reynolds Tobacco Co.

Eclipse was considered ahead of its time when developed in the 1990s, but has struggled to gain traction with smokers while in national distribution from 2003 to 2007. Eclipse remains available in limited supply at wholesale and retailer request, including at local Reynolds facilities and in markets in the Carolinas and Texas.

In July, Reynolds entered the Food and Drug Administration’s regulatory gauntlet with a substantial-equivalence application, according to a presentation by parent company BAT.

A substantial-equivalence filing is for products that either have the same characteristics as those marketed on/before Feb. 15, 2007, or have different characteristics but do not raise different questions of public health.

“Our application is for an improved version of Eclipse based on the grandfathered version of the product,” Reynolds spokesman David Howard said.

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