US vaping backlash will hit profits, Imperial Tobacco warns
Imperial Brands has warned that a backlash against vaping in the US will push the tobacco company’s profits below expectations for the year.
The FTSE 100 company said the market for “next-generation products” such as its Blu vaping brand had got tougher in the US as government agencies and states had clamped down on vaping. US health officials have identified at least 530 confirmed and probable cases of severe lung-related illnesses and seven deaths linked to vaping.
California on Wednesday urged citizens not to vape while investigations into the effects of the products continued. California’s move followed Donald Trump’s proposed ban on flavoured e-cigarettes, which are popular with teenage users, and a four-month block on sales of tobacco and marijuana vaping products by Massachusetts.
In a trading update the company, formerly known as Imperial Tobacco, cut its guidance for annual net revenue growth to about 2% from a previous estimate of between 1% and 4%. Earnings per share guidance – a key measure of profit – was revised down from growth of up to 8% to zero.
Imperial said: “The USA [nextgeneration] environment has deteriorated considerably over the last quarter with increased regulatory uncertainty, including individual US state actions. This has prompted a marked slowdown in the growth of the vapour category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products.”
Imperial shares were down 13% at £17.92 in late afternoon trading on Thursday. The sharp fall is a further setback for Neil Woodford, the fallenstar fund manager, who has reinvested funds from his suspended flagship fund in Imperial along with other FTSE 100 companies.
Tobacco companies have been banking on the rise of vaping and other alternatives to cigarettes for sales growth. The products have been seen as safer than cigarettes, but health officials have clamped down on such claims amid soaring use among US teenagers, with 1.5 million Americans using e-cigarettes.
Walmart, the biggest US bricks and mortar retailer, said last week it would stop selling e-cigarettes in the US after its stock was exhausted. The company cited “growing federal, state and local regulatory complexity and uncertainty”.
The reaction against vaping caused the collapse of merger talks between the Marlboro makers, Philip Morris, and Altria this week. The combined company would have dominated the US vaping market but Philip Morris walked away after deciding the vaping backlash made Altria too risky. Altria owns 35% of Juul Labs, a vaping products maker, whose chief executive, Kevin Burns, stepped down on Wednesday amid scrutiny from federal authorities.
Imperial said it expected revenue from next-generation products, which also include heated tobacco and oral nicotine, to grow 50% this year – less than previous expectations.