Category: News This Week

  • New CEO at Pax Labs

    New CEO at Pax Labs

    Pax Labs, a supplier of premium cannabis vaporizer technology, has appointed Michael Murphy as its president and CEO.

    Prior to joining Pax, Murphy was a managing director at AlixPartners and served as the local market leader for both the San Francisco Bay Area and Hong Kong practices. While at AlixPartners, Murphy led engagements both as a consultant and in management roles at companies including Nextwave Wireless, PacketVideo, as well as Diamond Foods and Home Depot’s Asia division.

    “As the industry emerges from some tough months, I am excited about the opportunity Pax has to be the leading company in cannabis vaporization technology,” commented Murphy.

    “Pax is already the recognized leader in providing premium products that prioritize transparency and customer safety. The brand is strong and the recently launched Era Pro is a testament to Pax’s legacy of producing the industry’s highest quality devices and commitment in continuing to provide customers with best-in-class technology.”

  • Exploring alternatives

    Exploring alternatives

    Cigarette manufacturers are developing new ways to deliver menthol in preparation for the EU ban on menthol cigarettes that is scheduled to take effect in May, reports Bloomberg.

    Imperial Brands, for example, has started selling cardboard strips that can be inserted into a pack of cigarettes, allowing the cigarettes to take on a minty flavor. Japan Tobacco has released cigarillos, which are exempt from the ban, that release menthol through capsules.

    The ban does not apply to tobacco accessories and is likely to intensify competition to lure menthol smokers to alternative products, such as IQOS, which is also exempt from the ban.

    Menthol sales will remain legal in Switzerland, which is outside the EU. Some worry that EU demand for menthol cigarettes after the ban will be met by illicit traders with cigarettes from Switzerland.

    Menthol cigarettes represent 5 percent of the market in Western Europe, but they generate $11 billion in sales, according to Euromonitor International.

  • JT reports results

    JT reports results

    Japan Tobacco (JT) reported revenue of ¥2.18 trillion ($19.8 billion) in 2019, down from ¥2.22 trillion in the previous year. Its adjusted operating profit was ¥515.9 billion, compared with ¥595.5 billion in 2018. The company’s adjusted operating profit at constant currency exchange rates for the year was ¥600.8 billion, up 0.9 percent over the previous year.

    For the fourth quarter of 2019, JT reported revenue of ¥541.9 billion, compared with ¥540 billion in the comparable 2018 period. Adjusted operating profit was ¥64.4 billion, down from ¥84.5 billion the 2018 quarter. Adjusted operating profit at constant currency exchange rates was ¥74.5 billion, down 11.8 percent over the prior year quarter.

    “Our consolidated adjusted operating profit at constant FX grew year-on-year, driven by growth in the tobacco business which exceeded the decline in the pharmaceutical business,” said Masamichi Terabatake, president and chief executive officer of the JT Group. “We also secured our free cash flow delivery despite a profit decline due to unfavorable currency movements.”

    “To pursue sustainable profit growth, the JT Group’s Business Plan 2020 incorporates the lessons learned through our business operations. The tobacco business remains the core and the key driver of our profit growth,” said Masamichi.

  • Smoke-free gains momentum

    Smoke-free gains momentum

    Philip Morris International (PMI) sold 706.71 billion cigarettes and 59.65 billion heated tobacco units in 2019, down 4.5 percent and up 44.2 percent, respectively, over 2018. In the fourth quarter of 2019, PMI shipped 175.09 billion cigarettes and 17.11 billion heated tobacco units. Those figures were down by 8 percent and up by 40.7 percent, respectively, over the prior year quarter.

    PMI reported net revenues of $29.81 billion in 2019, up from $29.63 billion in 2018. Its operating income was $10.53 billion, compared with $11.38 billion in the previous year. Adjusted operating income was $11.76 billion, up from $11.38 billion in 2018.

    “2019 marked a year of strong underlying business performance for PMI, driven by broad-based growth for IQOS and solid pricing for our combustible tobacco portfolio, with like-for-like adjusted diluted EPS up by 9.9 percent, excluding currency,” said André Calantzopoulos, chief executive officer of PMI.

    “We continue to make significant progress in the transformation of our business, with smoke-free products now accounting for 8 percent of shipment volume and nearly one-fifth of net revenues, while further demonstrating our ability to maintain combustible tobacco leadership internationally, as evidenced by Marlboro’s full-year cigarette share of 10 percent—an all-time high.”

    Morgan Stanley noted that the strong heated tobacco volumes reinforce the improving momentum of PMI’s IQOS device over the past quarters. “We expect today’s in-line results and solid FY2020 guidance to offer relief given lower expectations heading into the quarter and concerns around 2020 guidance due to anticipated headwinds in Indonesia,” wrote Morgan Stanley analyst Pamela Kaufman, referring to an above-inflation tobacco tax hike in that country.

  • Vapor executive testify

    Executives from the five largest U.S. e-cigarette companies appeared before the House Energy and Commerce Oversight and Investigation Subcommittee on Feb. 5 for questioning about their role in the spread of underage vaping.

    K.C. Crosthwaite of Juul Labs Inc., Ricardo Oberlander of Reynolds American Inc., Ryan Nivakoff of NJoy, Antoine Blonde of Fontem Ventures and Jerry Loftin of Logic answered queries about marketing practices, the addictive nature of nicotine, and other vaping-related issues.

    While all executives agreed that nicotine is addictive, a divide appeared between Juul Labs and the other companies when lawmakers pressed them about marketing practices, with some leaders suggesting that the marketing practices allegedly intended to lure teens to their products were not universal.

    Representative Raul Ruiz noted that Juul Labs had halted its broadcast, print and digital product advertising. “Do you believe that the e-cigarette industry should be subject to the same advertising restrictions as combustible cigarettes?” he asked Crosthwaite.

    Crosthwaite deferred to the U.S. Food and Drug Administration (FDA). “I think the FDA is going to have complete oversight over marketing practices,” he said.

    Republicans on the committee were generally less confrontational than Democrats in their questioning, but Representative David McKinley zeroed in on a central health concern: the potential for dangerous substances to become embedded deep in the lungs.

    McKinley referenced a number of studies done by the National Academy of Science, Medicine and Engineering, saying they concluded that vapor products included heavy metals and ultrafine particles as well as toxic and carcinogenic materials and ingredients.

    Crosthwaite denied knowledge of these studies.

    The hearing echoed a 1994 hearing of seven tobacco companies, whose executives all testified that nicotine was not addictive. It was later determined that those testimonies were knowingly false. In 1998, those same executives admitted before Congress that smoking is addictive and hazardous.

  • Income down

    Income down

    Universal Corp. reported net income of $56.1 million for the nine months ended Dec. 31, 2019, compared with $72.8 million for the same period of the prior fiscal year. Excluding certain nonrecurring items, net income declined by $20 million.

    For the third fiscal quarter that ended Dec. 31, 2019, net income was $26 million, compared with net income of $28.1 million for the prior year’s third fiscal quarter. Excluding certain nonrecurring items, net income declined by $17 million.

    For the quarter ended Dec. 31, 2019, results declined for all segments compared to the quarter ended Dec. 31, 2018. Consolidated revenues decreased by $277.5 million to $1.3 billion for the nine months ended Dec. 31, 2019, and by $131.1 million to $505 million for the three months ended Dec. 31, 2019, compared to the same periods in fiscal year 2019, on lower sales volumes and prices.

  • Williams joins Universal

    Williams joins Universal

    Jacqueline T. Williams will join the Universal Corp. board of directors effective April 1, 2020.

    Williams has held several leadership roles for the state of Ohio over the last decade, most recently as the director of the Ohio Department of Commerce. She was also the chief of minority business development with the state’s Development Services Agency as well as executive director of the Ohio Liquor Control Commission.

    She previously worked for the New America Foundation as a director in the College Savings Initiative, and she served for a decade as an executive director for the Ohio Tuition Trust Authority. She spent the first 15 years of her career with AT&T.

    “We are delighted to have Jackie Williams join the Universal Corporation board of directors,” said George C. Freeman III, chairman, president and CEO of Universal Corporation.

    “Jackie is an accomplished executive who brings more than 40 years of experience in leadership roles across the public and private sectors. The diversity of her experience will be a valuable addition to our board, and we look forward to benefiting from her unique insights and informed perspectives.”

  • Flavor ban takes toll

    Flavor ban takes toll

    Due to U.S. flavor bans and weaker than expected demand for vapor products, Imperial Brands expects its adjusted earnings per share to be slightly lower than last year. Constant currency full-year group net revenue will likely be at a similar level to last year’s, according to the company.

    First half adjusted earnings per share are expected to be down about 10 percent at constant currency due to the phasing of inventory write-downs, primarily relating to the U.S. flavor ban.

    Regulatory uncertainty and adverse headlines continue to affect next-generation product (NGP) demand in the U.S. and Europe, according to Imperial Brands. This will result in significantly lower year-on-year NGP net revenue as well as increased provisions for slow-moving stock.”

    “We are implementing a further cost savings program to mitigate some of these short-term headwinds, which will result in a full-year net impact on adjusted operating profit of c. £40 million ($51.98 million),” Imperial Brands wrote in a statement.

    The upcoming FDA flavor ban “has resulted in a write-down of flavored inventory with a first half adjusted operating profit impact of c. £45 million, in line with previous estimates,” according to the company.

  • Damages awarded

    Damages awarded

    Philip Morris has been ordered to pay $10.5 million in damages to a former marine who lost his voice box to cancer from smoking cigarettes.

    After deliberating for four days following a two-week trial, a Florida jury found that Philip Morris had misrepresented and obscured the health impacts and addictive nature of its cigarettes.

    Plaintiff Edward Principe alleged that Philip Morris sold cigarettes containing a design defect and had hidden the truth about those cigarettes. Thus, he claimed the company was responsible for his laryngeal cancer.

    The jury found that the cigarettes were not defective but that Philip Morris made statements misrepresenting cigarettes’ health impacts and addictive nature as well as statements hiding the facts. The company also made an agreement with other tobacco companies to make fraudulent statements, according to the jury.

  • Writedown impact limited

    Writedown impact limited

    While Altria Group’s second impairment charge for its Juul investment is credit negative, it will have minimal financial impact, according to Moody’s Investors Service.

    Altria Group recently announced an additional $4.1 billion non-cash impairment charge related to its original $12.8 billion investment in Juul Labs. This follows a previous $4.5 billion impairment charge taken last quarter on the same investment.

    The write-down leaves Altria with a $4.2 billion remaining book value for its Juul stake, or 33 percent of its initial minority investment in Juul made just over a year ago.

    The impairment is credit negative for Altria because it primarily reflects higher litigation activity at Juul and thus diminished potential to receive cash from the business in the near term, according to Moody’s. “However, the charge is non-cash and does not have a material impact on Altria’s credit profile given we were not expecting Juul to contribute materially to Altria’s earnings and free cash flow over the next 12 [months]–18 months,” Moody’s wrote in a report.

    “We view Juul as an ill-timed and disappointing investment, but one that continues to enhance the company’s long-term platform in noncombustible products.”
    Source: Moody’s Investors Service