A decrease in traditional-cigarette and next-generation tobacco products sales contributed to Imperial Brands PLC having a 24.3% decline in fiscal 2019 profit to $1.39 billion.
The tobacco manufacturer, which owns ITG Brands LLC in Greensboro, reported Tuesday that diluted earnings were down 48 cents to $1.37 a share. Its fiscal year ended Sept. 30.
Fiscal year revenue was $40.7 billion, up 5.2%. Cost of sales was also up 5.2%, to $32.7 billion.
“2019 has been a challenging year with results below our expectations due to tough trading (retail sales) in next-generation products,” Imperial’s chief executive, Alison Cooper, said in a statement.
Imperial’s board of directors announced on Oct. 3 a mutual agreement on Cooper stepping down after nine years “once a suitable successor is found.”
Next-generation products include blu eCigs sales in the U.S. and Europe and Pulze heat-not-burn traditional cigarettes sales in Japan.
Like competitors Philip Morris USA and British American Tobacco PLC, Imperial has been affected directly by growing uncertainty about the U.S. electronic-cigarette market.
Overall U.S. e-cigarette sales have declined in recent weeks amid the public-health scare involving the use of THC liquids in some open-pod products, as well as a forthcoming regulatory clampdown by the U.S. Food and Drug Administration at the request of President Donald Trump that could limit e-cigarette flavorings to tobacco and menthol.
While next-generation product sales rose 50% over fiscal 2018 to $367 million, “this was below the level we expected to deliver,” Cooper said. “Our delivery was also impacted by an increasingly competitive environment and regulatory uncertainty in the USA.”
She said Imperial has taken the lessons from this year to reset its plans for investing in next-generation products, “prioritizing the markets and categories with the highest potential for sustainable, profitable growth.” Those are expected to focus on Pulze and “modern oral” products such as snus.
“We will scale up investment as the visibility on returns and regulatory uncertainties improves,” Cooper said.
Imperial’s share price hit a 52-week low of $21.75 on Sept. 29 after its fiscal 2019 earnings warning about lower next-generation product sales in the U.S.
By comparison, its 52-week high is $36.25, reached on Nov. 9, 2018.
Share price opened trading Tuesday at $22.38 and closed at $22.53.
When Reynolds American Inc. announced plans in 2014 to spend $29.25 billion to buy rival Lorillard Inc., essentially to acquire top-selling menthol brand Newport, a key part of the deal was Imperial agreeing to pay $7.1 billion for the rest of Lorillard.
Reynolds and Lorillard sold Imperial the cigarette brands of Kool, Salem and Winston from Reynolds and Maverick from Lorillard, as well as Lorillard’s blu eCigs.
Winston is a top-10 cigarette in the U.S. market with a 2% market share, according to Nielsen data on convenience store sales.
Imperial said that “Winston’s share performance has been relatively resilient, despite the premium segment in the USA remaining under pressure from the growth in deep discount.”
“We are managing price promotions and targeted direct marketing activities to support the share performance,” the company said.
New board chair
On Tuesday, Imperial announced that Thérèse Esperdy, a senior independent board member, will succeed Mark Williamson as chairman on Jan. 1. Esperdy joined the board in 2016. Williamson is stepping down because of new British guidelines on the length of board chair tenures.
The fiscal 2019 financial report comes as ITG has reduced its overall workforce in recent weeks.
On Oct. 29, ITG confirmed it has offered a voluntary separation program to sales employees outside Greensboro, with more than 100 accepting. Most tobacco manufacturers have a significant percentage of their workforce servicing retail and wholesale customers across the United States.
The workforce reduction comes after ITG told the N.C. Commerce Department on Oct. 17 that it had made official plans to end production at its Reidsville cigarette-manufacturing plant by Dec. 31, effectively eliminating 110 jobs.
Since the Lorillard sale, at least 375 ITG production jobs have been eliminated.
ITG spokesman Mark Smith said on Oct. 17 that ITG’s Greensboro workforce has shrunk from 1,700 to 925 since ITG’s creation in 2015. Production workers, who numbered 1,100 before the sale and 675 afterward, were hit hardest.
At that time, ITG had 859 sales and marketing employees across the country and 22 at its leaf-processing plant in Danville, Va.