Unlike conventional cigarettes, Philip Morris (NYSE: PM) heated tobacco products (reduced-risk products) are e-cigarettes that do not burn tobacco. IQOS, PM’s flagship product under the category, is a precisely controlled device into which a specially designed heated tobacco unit is inserted and heated to generate an aerosol.
Please refer to the Trefis interactive dashboard –Â Philip Morris’ Heated Tobacco Products: Why Are E-Cigarette Volume Sales Increasing, And What Does This Mean For Philip Morris? – to understand the annual and quarterly growth in e-cigarette volume sales.
- Philip Morris’ e-cigarette volume sold increased 5.6x in 2 years, from 7.4 million in 2016 to 41.4 million in 2018.
- Volume has largely increased over the last 5 quarters as well (except for a marginal drop in Q1 2019).
- Volume for first 3 quarters of 2019 (42.6 million) has already surpassed the full year figure for 2018 (41.4 million), indicating that 2019 is also expected to continue to see a healthy growth in volume sold.
- For the full year, Trefis estimates that Philip Morris could sell around 55 million e-cigarettes, marking a growth of 33% in a year.
- Number of e-cigarette consumers have increased at a CAGR of 8.2% between 2016 and 2018, from 35 million in 2016 to 41 million in 2018, as people are switching from combustible products (cigarettes) to non-combustible options like e-vapor.
- At a similar growth rate, global vaping customers could reach close to 45 million in 2019.
- Also, FDA approval for marketing and sale of IQOS in the US in mid-2019, is expected to drive future growth in volume sales for PM.
- Sharp growth in volume has led to an equivalent growth (5.6x) in revenue from heated products between 2016 and 2018 for PM.
- A 33% growth in volume in 2019 could lead to a 28% rise in segment revenues during the year, as promotional offers and discounts have kept pricing lower.
- Healthy growth in volume has led to the contribution of heated products in Philip Morris’ total revenue to rise from 3% in 2016 to 14% in 2018, which is further expected to rise to 17% by end of 2019.
To better understand how heated products are expected to drive PM’s growth, refer to the following Trefis analysis-Â Â Reduced-Risk Products Division: Philip Morris’ Primary Growth Engine?
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