Marlboro maker Philip Morris to enter e-cigarette business

Siddharth Cavale and Devika Krishna Kumar
Nov 20, 2013

Philip Morris International Inc (PM.N) plans next year to enter the electronic cigarette business, a $2 billion-plus global market identified by the maker of Marlboro cigarettes as its “greatest growth opportunity”.

Speaking to investors in New York, Philip Morris Chief Executive Andre Calantzopoulos said the company would enter the e-cigarette business in the second half of 2014 to tap fast-growing demand for a less harmful alternative to cigarettes.
The world’s largest listed tobacco company will launch a new range of products, called “Reduced-Risk”, Calantzopoulos said at a conference. The company, which sells to countries outside the United States, will also spend more on research and development.

“2014 will be a key investment year behind our Reduced-Risk products, our greatest growth opportunity in the years to come,” he said.

Market consultant Euromonitor estimates the world market for electronic cigarettes was more than $2 billion last year, with the United States accounting for a quarter of that.

The market is growing at breakneck speed. Some analysts predict e-smokes could outsell conventional cigarettes within a decade, particularly as Big Tobacco grapples with declining sales due to government regulation and health-aware consumers.
Yet e-cigarettes – battery-powered metal tubes that turn nicotine-laced liquid into vapor – are far from universally accepted as a public health tool.

Regulators are agonizing over whether to restrict them as “gateway” products to nicotine addiction and tobacco smoking, or embrace them as treatments for would-be quitters.

A big issue is the lack of long-term scientific evidence to support the safety and effectiveness of e-cigarettes, prompting critics like the British Medical Association (BMA) to warn of the dangers of their unregulated use.

CELEBRITY E-SMOKERS
Celebrity endorsements from Courtney Love, Leonardo DiCaprio and others have provided further inducement to the makers of iconic cigarette brands to invest.

Imperial Tobacco Group (IMT.L), the world’s No. 4 international tobacco company, has announced plans to launch two electronic cigarettes in fiscal 2014.

Lorillard (LO.N), known for its Newport and Kent cigarette brands, paid $135 million to acquire Blu Ecigs in 2012 and last month acquired Britain-based e-cigarette maker SKYCIG.

Other leading tobacco companies, including British American Tobacco (BATS.L) and Camel cigarette maker Reynolds American (RAI.N), are also placing their bets on e-smokes.

Philip Morris said on Wednesday it estimated the retail sales value of the eight largest e-cigarette markets worldwide at around $2.5 billion, with nearly half outside the United States and China.
Philip Morris also raised its full-year earnings forecast to $5.37-$5.42 per share from $5.35-$5.40, citing a reduced impact from unfavorable exchange rates.

Analysts on average were expecting Philip Morris to earn $5.39 per share, according to Thomson Reuters I/B/E/S.
The company’s shares were down 2.5 percent at $89.18 on Wednesday afternoon on the New York Stock Exchange.
(Writing by Robin Paxton; Editing by Kirti Pandey and Saumyadeb Chakrabarty)