BATS British American Tobacco Plc

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)

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