Tobacco's Future Is High Tech, But Regular Cigs Still Rule

(Bloomberg) -- Paper is still king for Japan Tobacco Inc., at least for now.

While the industry may be staking its future on high-tech smoking devices as global regulations are tightening, Big Tobacco gets the majority of its money through traditional cigarettes.

That’s clear from Japan Tobacco’s results released Tuesday. Overall, international cigarette sales volume rose 7.3 percent in the first quarter as the company shipped 98 billion units. That dwarfed results for Japan Tobacco’s next-generation product Ploom Tech, which sold the equivalent of about 300 million cigarette units.

Tobacco's Future Is High Tech, But Regular Cigs Still Rule

Operating profit declined, dropping 1.5 percent as Japan Tobacco continues to struggle in its home market. But contributions from the company’s buying spree of traditional cigarette companies in Ethiopia, Indonesia and the Philippines helped beat analyst estimates for the first quarter.

Japan Tobacco shares climbed as much as 5.6 percent in early trading in Tokyo on Wednesday, for the biggest intraday gain in almost two years.

“Our traditional tobacco products, the platform of the group’s profitability, delivered robust top-line growth led by pricing in the international tobacco business,” Japan Tobacco Chief Executive Officer Masamichi Terabatake said in a statement Tuesday.

Heat-not-burn is still projected to be one of the highest growth segments in tobacco, a potential boon for the company as it expects industry demand for cigarettes in Japan will drop almost 18 percent this year. Japan Tobacco is rolling out Ploom Tech nationwide in June, sooner than previously projected.

Such initiatives come with a higher cost of entry, and the payoff can be less dependable. Philip Morris International Inc. last month reported slowing sales growth of its IQOS heated product after initial success in Japan.

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