Marlboro Maker Confident in Smokeless After iQos Slowdown

(Bloomberg) -- Philip Morris International Inc. forecast that its cigarette-alternative business will rebound from a recent slowdown as it introduces alliances with hotels, dentists and life insurers to try to persuade more smokers to switch.

Shipments of the tobacco sticks used in products such as the iQos device will more than double to as many as 100 billion units by 2021, the maker of Marlboro cigarettes forecast Thursday during an investor meeting at its Lausanne, Switzerland, headquarters. That’s more than the number of cigarettes the company currently sells in Latin America and Canada, combined.

Despite its optimism about smokeless alternatives, Philip Morris cut its 2018 profit forecast because of the currency crises in Argentina and Turkey, becoming one of the first big consumer-goods providers to flag the effects of the turmoil. The company said adjusted earnings per share will increase at a compound average rate of at least 8 percent from 2019 through 2021.

The iQos system hit obstacles this year as growth slowed in Japan, the market where it’s had the most success. To get more smokers to switch to the product, which heats tobacco rather than burning it, the company is reaching out to dentists and pharmacists and finding partners to offer cheaper life insurance policies for people who convert. The cigarette maker said more than 200 hotels now offer rooms that allow lodgers to use iQos.

Read more: Marlboro Maker Cuts Forecast on Argentina Currency Crisis

The company expects shipments of heated-tobacco sticks this year to rise to as many as 42 billion from 36 billion last year as it introduces a new device that’s more compact as well as more flavors of tobacco. Every additional 2 million people who switch to iQos add about $900 million to annual revenue, Philip Morris said. The company estimates that 5.8 million people have switched to iQos, whose market share would place it in the top 15 brands if it were a cigarette.

The difficulty in gaining new clients in Japan is significant because that’s where almost two thirds of the 8.6 million iQos users reside. About 15 percent of the tobacco consumed in Japan consists of iQos heat sticks, a success that Philip Morris has so far failed to replicate elsewhere, despite offering the device in another 42 markets. That has led analysts and rivals such as Imperial Brands Plc to question whether heated tobacco will ever really catch on elsewhere.

‘Adult Conversation’

Chief Executive Officer Andre Calantzopoulos said some authorities such as the World Health Organization have had too much of an “adversarial” relationship with tobacco companies and he’d like to start an “adult conversation” with them.

The WHO urges governments to ban contact with cigarette makers, and just this week, Director-General Tedros Adhanom Ghebreyesus canceled his participation in a New York sustainability event where Calantzopoulos spoke. Regulators are also divided on whether alternatives like vaping and heated-tobacco devices wean people from smoking or encourage young people to give it a try.

Separately, Philip Morris started selling Mesh, an attempt to make an improved electronic cigarette, in London in late July, according to Miroslaw Zielinski, head of science and innovation at the company. He said another version of iQos, which requires lighting but doesn’t burn the tobacco, shows “strong potential” following pilot sales in the Dominican Republic.

©2018 Bloomberg L.P.