Shares in Imperial Brands (IMB) slumped 10% to £18.58 after the tobacco manufacturer coughed up a damaging profit warning. Year-to-September 2019 sales growth guidance has been cut from 2.5% to ‘around 2%’ for broadly flat earnings per share.
In a disappointing pre-close trading update, Imperial Brands blamed vaping hysteria in the USA for lower than expected growth in less harmful next-generation products (NGPs), as well as an aggressive push for market share gains in the competitive Australian market, for the growth shortfall.
US SLOWDOWN BITES
Imperial Brands’ overall NGP business is now expected to grow by ‘around 50% this year’, below management expectations following a slowdown in the US market. Across the pond, a number of deaths have been linked to vaping products and there is growing alarm surrounding a youth e-cigarette epidemic.
‘The USA NGP environment has deteriorated considerably over the last quarter with increased regulatory uncertainty, including individual US state actions,’ said Alison Cooper-led Imperial Brands in today’s update.
‘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.’
All this has impacted on demand for Imperial Brands’ myblu vape brand across the pond. However, vapour continues to grow nicely in both Europe and Japan, while vaping still remains a very modest contributor to group profits for the time being.
As Imperial Brands assured: ‘Our tobacco business continues to perform well, delivering low single digit revenue growth and higher tobacco operating profit.’
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Russ Mould, investment director at AJ Bell, commented: ‘It is not a good time to be a vaping company. Political and regulatory pressures are coming down hard on the sector and resulting in fewer US retailers and wholesalers ordering or promoting vaping products. Competition is also fierce, particularly in places like Australia.
‘Tobacco companies like Imperial Brands have bet everything on vaping and other smokeless alternatives being the future of their business.
While the public has been slowly switching from cigarettes to smoke-free products, there is a growing negative backlash in other circles caused by concerns over the large number of younger people vaping and the potential health threats.’
Mould added: ‘Stocks like Imperial Brands have historically been bought by investors for their seemingly resilient earnings and generous dividend payments.
Unfortunately the cigarette industry can no longer be seen as a defensive investment given the increasing political and regulatory concerns. The risks are increasing on a daily basis and Imperial Brands’ troublesome trading update may not be a one-off blip.’
