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 diluted earnings per share of US$7.18 to US$7.33, down from a previous range that reached up to US$7.71, according to a statement released Tuesday.
Impairment Charge and Guidance Revision
The downgrade comes after Philip Morris International (PMI) announced that Rothmans, Benson & Hedges (RBH), its Canadian affiliate, updated its five-year financial projections. This update resulted in a non-cash impairment charge during the second quarter. RBH continues to operate as PMI's affiliate in Canada, despite being deconsolidated from the group following damages awarded in a protracted tobacco lawsuit that forced Canadian subsidiaries to seek bankruptcy protection. The lawsuit alleged that the companies failed to adequately warn consumers that their products caused cancer and other illnesses.
Currency Movements Impact
PMI also lowered its guidance for adjusted diluted earnings per share to account for currency movements, further affecting the fiscal year outlook. The company's adjusted earnings guidance was trimmed to reflect these foreign exchange headwinds.
Shift to Smoke-Free Products
Like its rivals, PMI is actively seeking to transition away from traditional cigarettes. Chief Executive Jacek Olczak stated at the Deutsche Bank global consumer conference in Paris, according to a transcript, that there is not a single country that will not see growing demand for smoke-free products. This strategic shift is central to PMI's long-term vision as it navigates declining cigarette sales and increasing regulatory pressures.
Industry Comparisons
Separately, British American Tobacco PLC (BAT) reported that it still expects adjusted operating profit growth to be at the lower end of its 4% to 6% target range for this fiscal year. BAT shares slipped as much as 4.6% in London before paring some losses. BAT CEO Tadeu Marroco noted that the company is not seeing a significant impact from the Middle East conflict, though consumer sentiment remains uncertain. He highlighted a correlation between gas prices and cigarette sales in the U.S., emphasizing the broader economic factors affecting the industry. BAT, which produces Dunhill, Lucky Strike, and Pall Mall cigarettes, is also shifting its focus to smoke-free alternatives such as Velo nicotine pouches.
