Philip Morris to Focus on Cigarette Alternatives

Philip Morris International, the company behind Marlboro, is to spend another $100m this year developing its alternative to traditional cigarettes as a global marketing drive intensifies to convert smokers to new products. Martin King, chief financial officer, said extra funds would be deployed to accelerate innovation of the company's IQOS product — a cigarette-like device that heats, rather than bums, tobacco. The plans, ahead of an imminent launch of IQOS in the US, are the latest sign of big tobacco ramping up investment to safeguard the industry's future. Rival manufacturers are fighting over a share of the market for alternatives as consumers reject traditional cigarettes at an accelerating rate. They include vaping company Juul, in which US tobacco group Altria took a 55 per cent stake last December for Sl3bn. 

Quarterly results yesterday from PMI, which makes Marlboro outside the US, underlined how the company is becoming increasingly reliant on IQOS. Shares were up more than 7 per cent by late morning in New York, giving it a market capitalisation of $135bn, as better than anticipated volumes prompted executives to raise full-year guidance. The company shipped lS4bn cigarettes to retailers globally in the second quarter, a decline of 3.6 per cent from a year ago. There were falls in all regions apart from south and south-east Asia. In contrast, PMI shipped 15bn heat sticks globally for its "heat-not-burn" devices, a year-on-year rise of 37 per cent. The $100m extra investment in IQOS is an increase of one-third from previous plans. 

"We've got to continue with our innovation pipeline," Mr King said, adding that competition for reduced risk products was 'intensifying''. Regulators fear some new products — particularly flavoured e-cigarettes — could get a new generation hooked on nicotine, although they also recognise they have the potential to reduce health risks substantially for existing smokers. PMI said it now expected adjusted earnings per share to rise at least 9 per cent this year, an increase of one percentage point. Net quarterly earnings increased 5.5 per cent to $2.3bn, equivalent to Sl.49 per share.