Imperial Brands Plc said profit growth will be weaker in the first half as it slows the pace of price increases on cigarettes and invests further in smoking alternatives.
The maker of Winston and Gauloises cigarettes, which is at the midpoint of a five-year turnaround plan, forecast operating profit to grow by a low single-digit percentage in the first half before picking up later in the year as sales of alternative smoking products rise.
The stock was little changed in early trading in London.
Imperial has been raising prices to offset volume declines as cigarette smokers give up the habit or switch to less harmful products such as vapes, heated tobacco and nicotine pouches. However, its pricing power is easing.
“It is fair to say the level of price increase we see going forward is going to be less than we have seen in fiscal 2023,” Chief Executive Officer Stefan Bomhard said on a call with reporters.
Imperial said sales of what it calls next generation products grew by 40% in Europe last year as more smokers quit. Company executives won’t forecast what percentage of sales they hope to achieve from vapes, heated tobacco and pouches.
“We have refrained from stating a public goal because the reality is that the market is significantly volatile,” said Bomhard.
Bigger rival Philip Morris International Inc. had aimed to derive more than half of its revenue from smoking alternatives by 2025 but recently scaled back that goal saying it will take a few more quarters than previously expected.
Imperial said Tuesday it still expects adjusted earnings growth to be close to the middle of its mid-single-digit range in the 12 months through September 2024. Operating profit for the 2023 fiscal year was £3.89 billion ($4.8 billion), just short of analysts’ estimates.
Imperial announced a £1.1 billion stock buyback in October, the day after the UK government unveiled its intention to raise the smoking age year by year.
The company expects low-single-digit constant-currency revenue growth this year.
--With assistance from Marthe Fourcade.
(Updates with company comments)