Category: Financial

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.

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

Altria Group announced on Jan. 30 that it reduced its investment value in Juul Labs to around $12 billion, almost 70 percent less than the $38 billion valuation that Altria bought into in December 2018.

Last October, Altria wrote down its Juul Labs stake by $4.5 billion followed by the $4.1 billion write down just announced.

“I’m highly disappointed in the performance of our Juul investment,” said Altria CEO Howard Willard.

According to Altria, the devaluation was driven by issues such as lawsuits, investigations into Juul’s marketing practices, flavored vapor product bans and a vaping health crisis.

While Altria will no longer provide marketing and retail distribution for Juul Labs as originally agreed, it will now focus on helping Juul Labs with regulatory affairs, including the submission of its products for approval by the U.S. Food and Drug Administration.

Japan Tobacco International (JTI) sold its 2.1 percent stake in KT&G of South Korea on Wednesday, ending a decade of strategic partnership, reports The Pulse.

Citigroup Global Markets reportedly tapped investors to sell the Japanese tobacco giant’s 2,864,094 shares in KT&G in a block deal.

After gauging investor demand, the final price was set at KRW94,000 ($78.8), a 2.8 percent discount to the Tuesday closing price.

KT&G shares finished Wednesday at KRW96,500, down 0.72 percent.

While JTI did not disclose a reason for its sale, market experts speculate the company lost interest in the alliance after shifting its Korean production to the Philippines two years ago.

Security and anti-counterfeiting solution provider De La Rue expressed concern about its future after it reported a pretax loss of £12.8 million in the first half of 2019, reports The Guardian. 

Shares in the Basingstoke, U.K.-based business plunged by a fifth after it said there was “material uncertainty that casts significant doubt on the group’s ability to continue as a going concern.”

The statement follows a series of setbacks including two profit warnings, an investigation into suspected corruption in South Sudan and its failure to win a £490 million contract to print the U.K.’s post-Brexit blue passport. In May, it wrote off £18 million after Venezuela’s central bank failed to pay its bills.

De La Rue prints banknotes for more than 100 central banks, including the Bank of England. In early 2019, it signed a £3.5 million contract with Her Majesty’s Revenue & Customs to implement a track and trace system for all tobacco products sold in the U.K

De La Rue blamed its poor performance on the departure of top bosses, including its chief executive, adding that major changes to its turnaround plan meant the program was not delivered as originally planned.

The company said it is now focused on delivering a turnaround plan under its new chief executive, Clive Vacher, who was appointed last month.

De La Rue employs more than 2,500 people globally.

Philip Morris International (PMI) today revised its 2019 full-year reported diluted earnings per share forecast for restructuring charges in Germany.

The revision is related to the company’s decision to end cigarette production at its factory in Berlin. PMI expects to record estimated pretax charges of approximately $355 million.

This estimated amount includes pension and employee separation costs of approximately $265 million, which will be paid in cash, and asset impairment costs of approximately $90 million primarily related to machinery and equipment, which are noncash charges.

The Berlin factory has a projected 2019 production capacity of approximately 40 billion units. Approximately 950 employees are impacted under the agreement. PMI will continue to produce expanded tobacco in Berlin.

Cost savings anticipated from this initiative are included in PMI’s annualized cost efficiencies target of more than $1 billion for the period 2019–2021.

Turning Point Brands reported net sales of $96.8 million in the third quarter that ended Sept. 30, up 16.1 percent from that in the comparable 2018 quarter.
Gross profit increased 18.2 percent to $42.8 million, but net income decreased $1.7 million to 6.3 million.

“Vaping headlines dramatically disrupted our third-party vaping distribution business starting in mid-August,” said Larry Wexler, president and CEO of
Turning Point Brands.

“While third-party vaping saw a step function down in the quarter, we produced strong quarterly performance in the smokeless and smoking segments. We
have proactively taken steps to address weakness in the third-party vaping distribution business.”

Altria Group has written down its investment in Juul Labs by more than a third, citing a proposed federal ban on flavored e-cigarettes and regular crackdowns by states and municipalities throughout the U.S.

The tobacco giant now values the e-cigarette maker at about $24 billion.

Facing declining sales of traditional cigarettes, Altria last year agreed to pay $12.8 billion for a 35 percent stake in Juul Labs, which dominates the U.S. vapor market.

In recent months, Juul Labs has faced intense criticism for a spike in underage vaping. Juul Labs is the subject of several investigations, including a criminal probe by federal prosecutors in California. By May, the company must submit for U.S. Food and Drug Administration (FDA) review any products it wants to remain on the U.S. market beyond that point.

Juul Labs’ sales have fallen since the Centers for Disease Control and Prevention in September warned the public to stop using e-cigarettes as it investigated a mysterious vaping-related lung illness.

The company plans to cut between 400 and 600 jobs by the end of the year as part of a reorganization aimed at mending damaged relationships with regulators.

Hedge fund Darsana Capital Partners also recently wrote down its investment in Juul Labs by more than a third. Fidelity Investments this week disclosed that it had slashed the value of its Juul Labs investment by nearly half, to around $20 billion.

Despite the challenges facing Juul Labs, Altria CEO Howard Willard expressed confidence in the future.

“We continue to believe the evolution of the tobacco industry represents a significant opportunity for Altria,” he said in a statement accompanying the presentation of Altria’s third quarter financial results.

“We marked major milestones in our transformation journey this year, including launching IQOS and completing the on! transaction. We believe that, with current adult smoker trends and e-vapor disruption, it’s an opportune time to expand the availability of these options.”

Analysts believe IQOS holds a distinct competitive advantage in the U.S., given that it’s the only reduced-risk product authorized by the FDA that will also be allowed to sell mint/menthol flavors in the event the FDA clears the market of nontobacco flavor variants.

Swedish Match’s third quarter 2019 operating profits were up 21.4 percent, strengthened by sales growth from its Zyn tobacco-free nicotine pouch product. Operating profits for the quarter were SKR1.59 billion, up from SKR1.31 billion in the third quarter of 2018.

Shipments of Zyn in the U.S. amounted to 31 million cans during the first nine months, up from 8.5 million cans in the prior year, according to Swedish Match.