The fallout from the US vaping crisis grew, with Imperial Brands Plc warning that earnings growth ground to a halt just after the backlash against e-cigarettes scuttled the biggest potential merger in the tobacco industry.
The UK maker of Blu e-cigarettes reported a drastic slowdown in revenue from smoking alternatives in recent months. That led the shares to plunge as much as 10% on Thursday, the steepest decline in a decade.
“It calls Imperial Brands’ and the tobacco industry’s longer-term business model into question,” said James Edwardes Jones, an analyst at RBC. “The implications should not be under-estimated.”
Imperial’s warning comes a day after Altria Group Inc. abandoned talks on a possible merger with Philip Morris International Inc. and installed one of its own executives at the helm of embattled e-cigarette maker Juul Labs Inc. US health officials are scrambling to identify a mystery illness linked to vaping, denting prospects for what had become one of the biggest new growth markets in the industry.
Consumers are now questioning the devices, touted to carry fewer health risks than traditional cigarettes.
Imperial Brands, the smallest of the major tobacco companies, has lost more than half its market value from a 2016 peak.
With a smaller research budget than rivals, the company has struggled to keep up with devices such as Juul and Philip Morris’s IQOS, which heats tobacco without burning it. After years of shrugging off that market in favour of its Blu vaping brand, Imperial recently introduced its first product in the heated-tobacco segment in Japan.
The UK-based maker of Winston cigarettes said earnings per share were roughly flat at constant currencies and sales rose about 2% in the 12 months through September. In May, the company said it expected sales might rise more than 4%.
The Trump administration said earlier this month that it would soon remove all flavoured e-cigarette nicotine pods from the market, and only allow them back in stores after they gained approval from the Food and Drug Administration. Several US states have moved to restrict vaping, and Walmart Inc. has decided to stop selling e-cigarettes in its home market.
The entire industry has been shuddering, not just the small independent vape companies that may have a harder time dealing with stricter policies from the FDA. In the past month, British American Tobacco Plc said that it plans to cut 2,300 jobs and Japan Tobacco Inc. announced it will eliminate 3,720 positions.
BAT shares fell as much as 4.8% on Thursday.
Imperial’s sales of smoking alternatives rose about 50% this fiscal year, slowing from the breakneck 200% pace of the first half. The company also cited a tougher market for tobacco in countries such as Australia.
Several potential buyers have expressed interest in its premium cigar business, Imperial also said. The company has put the unit up for sale as part of a plan to raise as much as 2 billion pounds ($2.5 billion) from asset disposals.