(Bloomberg) -- Philip Morris International Inc. raised its forecast for annual profit growth on higher demand for its Zyn nicotine pouches, as enthusiasm for tobacco alternatives rages on.
Annual sales of Zyn will reach as high as 580 million cans, Philip Morris said Tuesday in a statement, up from the previous guidance for 560 million. The company, whose brands also include Marlboro cigarettes and IQOS heated tobacco sticks, boosted its full-year forecast for adjusted earnings per share growth to a range of 11% to 13%.
Philip Morris has been moving toward cigarette alternatives amid widening public awareness and concerns about tobacco, its longtime core business. While the products contain fewer of the particles and chemicals that have linked cigarettes to diseases like cancer and heart disease, their mounting popularity has sparked controversy over whether young people who have never smoked have become hooked on them.
The company said earlier this month that it would spend $600 million for a new facility to make Zyn in the US, a move to counter shortages that have held back growth. Online US sales of the pouches were also halted after the company received a subpoena from the District of Columbia because of sales of flavored pouches that are banned there.
The shares rose as much as 3.9% at the New York market open, the most intraday in three months, after gaining 14% this year through Monday’s close.
Sales volumes of heated tobacco products, which include IQOS, will be about 140 billion units in the second half, Philip Morris said. Previously, it had said volumes would be more than 140 billion.
Alternative Products
“The downgrade to expectations here is likely to be viewed negatively,” Jefferies analysts wrote in a note, saying they were surprised at the profit guidance increase.
Alternative products like Zyn and IQOS accounted for 38% of net revenue in the second quarter. The company has acknowledged that it may not reach a previous target of generating more than half of its revenue from smokeless alternatives by 2025, although it is still targeting two-thirds of sales from such products by 2030.
Quarterly heated tobacco product sales were strong in Japan, following an expansion of the IQOS product range, as well as Greece, Hungary and Spain. In Japan, Philip Morris grew its market share for heated tobacco by more than 3 percentage points to more than 29%.
In a call with analysts, Chief Financial Officer Emmanuel Babeau said the company will begin a trial of IQOS in Austin in the fourth quarter of this year. He also said there was a large opportunity for Zyn outside the US, including in Mexico and the UK.
(Updates shares in fifth paragraph.)
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