Philip Morris International Inc. has reduced its profit forecast for the current fiscal year following a US$500 million writedown on its investment in its Canadian affiliate. The tobacco giant, known for selling Marlboro cigarettes outside the United States, now expects adjusted diluted earnings per share of US$7.18 to US$7.33, down from a previous high of US$7.71, as announced in a statement on Tuesday.
Impact of Canadian Affiliate Writedown
The downgrade comes after Rothmans, Benson & Hedges (RBH), PMI's Canadian affiliate, updated its five-year financial projections, leading to a non-cash impairment charge in the second quarter. RBH continues to operate as PMI's affiliate in Canada despite being deconsolidated from the group following damages awarded in a lengthy tobacco lawsuit. The lawsuit alleged that companies failed to adequately warn consumers about the cancer and other illness risks associated with their products, forcing Canadian subsidiaries to seek bankruptcy protection.
Currency Movements and Guidance
PMI also lowered its guidance for adjusted diluted earnings per share to account for currency fluctuations. The company is navigating a challenging environment as it seeks to transition away from traditional cigarettes. Chief Executive Jacek Olczak stated at the Deutsche Bank global consumer conference in Paris, "There is not a single country which will not see the growing demand for the smoke-free products."
Industry Trends and Competitor Moves
Like its rivals, PMI is focusing on smoke-free alternatives. British American Tobacco PLC (BAT) also reported expectations for adjusted operating profit growth at the lower end of its four per cent to six per cent target range for the fiscal year. BAT shares fell as much as 4.6 per cent in London before recovering slightly. BAT CEO Tadeu Marroco noted that the company is not seeing a significant impact from the Middle East conflict, though consumer sentiment remains uncertain. "We are all aware that there is correlation between gas price, for example, and sales of cigarettes in the U.S.," he told analysts. BAT, maker of Dunhill, Lucky Strike, and Pall Mall, is shifting its focus to smoke-free alternatives such as Velo nicotine pouches.
