Shares in Imperial Brands dived to their lowest level in a decade on Thursday after the British tobacco group warned over a hit to annual sales amid a regulatory crackdown against Vaping in the U.S.
The U.K. maker of Blu e-cigarettes said profits per share will be flat this year compared with last year. It now expects revenue growth of just 2% for the year ending September 30, well short of its previous guidance of up to 4%.
The profit warning dragged shares in Imperial down by almost 10% in London on Thursday to £18.67 a share. Shares in rival British American Tobacco fell almost 2%.
“The U.S. next generation products environment has deteriorated considerably over the last quarter with increased regulatory uncertainty,” Imperial said in a statement.
“This has prompted a marked slowdown in the growth of the vapor category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products,” the company added.
Imperial’s warning comes just hours after the chief executive of e-cigarette maker Juul, Kevin Burns, stepped down as merger talks between its biggest investor Altria and Philip Morris International were abandoned. The deal would have reunited the makers of Marlboro more than a decade after they split, and created a combined group with $200 billion in sales.
Juul Labs, which is 35% owned by Altria, has come under intense scrutiny in the U.S. due to the surge in popularity of vaping among teenagers. The Trump administration said this month that it is preparing a nationwide ban on flavored e-cigarettes following a series of serious lung injuries in the U.S. linked to vaping. Juul is also facing an investigation into its marketing practices. On Wednesday Juul said it would suspend all advertising in the U.S.
Nicholas Hyett, analyst at Hargreaves Lansdown, said that although vaping was only a small contributor to Imperial’s revenues and profits at the moment, investors had hoped the business would drive growth as traditional tobacco declines.
“For now sales in Europe and Japan seem to have escaped too much of a knock-on effect, with regulators in the U.K. looking to reassure vapers about the health benefits of switching from traditional tobacco to e-cigarettes. However, having only recently increased investment behind its U.S. vaping proposition this is less than ideal for Imperial.”
Imperial acquired Blu via the $7.1 billion acquisition in 2014 of American cigarette brands sold as part of the takeover of Lorillard by Reynolds American.
In July, Imperial said it would end its 10% annual dividend growth target in its next financial year, which begins in October, and base its future payments on the performance of the business.
Russ Mould, investment director at AJ Bell, said that stocks like Imperial Brands have historically been seen by investors as a dependable source of income because of their resilient earnings and generous dividend payments.
Mould added: “Unfortunately the cigarette industry can no longer be seen as a defensive investment given the increasing political and regulatory concerns. The risks are increasing on a daily basis and Imperial Brands’ troublesome trading update may not be a one-off blip.”
Imperial said its traditional tobacco business, which includes Winston and Lambert & Butler, continued to perform well and deliver low single-digit revenue growth. The sale of its premium cigar business is also progressing well and has generated “strong interest” from a number of potential buyers.