Philip Morris International, a few months ago, was fast in dismissing e-cigarettes. The company claimed that e-cigs were lacking in their tastes and manufacturing standards were wanting. Recent headlines are showing Philip Morris International changing faces and recommending e-cigarettes to clients. The store now plans to launch its own vaping gear line by 2014. What could have caused this urgent turnaround? All indicators point at the need to improve sales. Last week, the shares of Phillip Morris International were performing very poorly in the S&P 500. Actually, the shares of the company are about 7 times down. In hopes for a rebound, the company is planning to enter the e-cig market after watching competing giants such as Reynolds American, and Lorillard Altria rise to great success in the blossoming e-cig industry.
Immediately after realising earnings for the month of October, Phillip Morris slashed its guidance for the year 2013 and blamed market weaknesses. International demand for the company’s products continued to weaken with about 5.7% in cigar volume in the last third quarter of 2013. Though Reynolds America reported a drop, it was smaller, 4.3%, while Altria and Lorillard had gains over the same period of time. In the course of last week, things spiralled down even further and the company projected further drop of its profit growth to about 6%-8% in the year 2014. This is way below the 10%-12% target for the same year. Worse still, the company expects its international sales to go down by about 2%-3% because of the weakening EU market. International sales are clogged with more challenges for Philip Morris because of stricter cigarettes limitations and new rules that require larger labels to warn users.
It therefore appears that Philip Morris as a last resort effort to try and get back to profitability is turning to e-cigarettes. Just like Lorillard reported great success following its acquisition of Blu electronics cigarettes, Philip Morris is considering to use the same route. At this juncture, e-cigarettes are not restricted by the same rules and regulations that are very harsh on the tobacco industry. The e-cigs are more appealing to people who are health conscious after realising the danger associated with tobacco and tar accumulation in conventional cigarettes.
However, no guarantee is evident that electronic cigarettes will continue being traded openly without regulations and taxes similar to those levied on tobacco. If revenue seeking government opts to capitalise on the blossoming market to get more returns, new taxes will no doubt hit the e-cigarette industry and raise production costs. This will negatively impact sales. FDA has faced massive pressure to establish regulations on e-cigs similar to tobacco products. If this happens as it is anticipated in the year 2014, Philip Morris could get into greater trouble before it even launches its e-gars into the market.
Despite the imminent threats and difficult uphill battle, the step to venture into e-cigs by Philip Morris is positive. The Marlboro ‘empire’ no doubt has a wide network of royal fans can be harnessed to boost the current ailing sales. This is a trend that the company is no doubt focusing on and its revenue could just be headed to the sky.
Are there chances of Philip Morris rising back on its sales after launching a new e-cigaratte line?