September 26, 2019 / 7:05 AM / a month ago

Imperial warns U.S. vaping backlash to hit annual profit

(Reuters) - Imperial Brands (IMB.L) expects full-year profit and revenue to take a hit from a regulatory crackdown on vaping in the United States, kicking its shares 11% down on Thursday in the latest fallout for tobacco firms from the U.S. health crisis.

The warning by the British maker of myblu e-cigarettes, Winston and Gauloises cigarettes, comes a day after U.S. tobacco firms Philip Morris (PM.N) and Altria (MO.N) axed their merger talks in the face of the backlash against vaping.

E-cigarette devices, which vaporize liquid containing nicotine, have caught the attention of government bodies worldwide after a spike in teenage usage and a string of illnesses and deaths possibly linked to them.

The U.S. government has announced a move to pull all flavored e-cigarettes from stores and some countries including India and Brazil have banned them in a crackdown that could reshape the tobacco industry.

Imperial said regulatory uncertainty in the United States has prompted a marked slowdown in the growth of the vapor category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products.

It now expects annual revenue to grow around 2% and earnings per share to be flat compared to the previous year at constant currency rates. Its next generation products (NGP) unit that focuses on e-cigarettes and vapor-based products is also seen growing below its expectations.

The company, which makes nearly 30% of its operating profit from the United States, had earlier expected revenue to grow at or above the upper end of its forecast range of 1% to 4%, with profit rising between 4% and 8% in the medium term.

FILE PHOTO: A man uses a vape device in this illustration picture, September 19, 2019. REUTERS/Adnan Abisi/Illustration/File Photo

Imperial shares looked on track for their biggest one-day fall ever after it also warned of challenges in its Australian tobacco business. Rival British American Tobacco’s (BATS.L) shares tumbled 4%.

Its NGP business is now expected to grow by around 50% this year, and Imperial said it could also end some contracts in its supply chain for these newer products as it evaluates the future. The possible contract cuts are not included in its latest outlook, it said.

Imperial, which reported revenue of 30.52 billion pounds ($37.71 billion) and profit of 272.2 pence per share in 2018, said despite the challenges, NGP provides a significant opportunity to deliver more growth.

Reporting by Pushkala Aripaka, Indranil Sarkar and Siddharth Cavale in Bengaluru; Editing by Bernard Orr, Rashmi Aich and Emelia Sithole-Matarise

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