Electronic cigarettes are picking up ubiquity as they have come as an aid to smokers looking to stop smoking. The gadget, E-Cig, was first presented by a Chinese pharmacist named Hon Lik in 1984. Following the time when the commencement of this gadget, another business was made by tobacco companies occupied with the assembling of cigarettes. Companies like Lorillard (LO) and Philip Morris International (NYSE:PM) are grasping this gadget to power their development.
Eventual fate of customary cigarettes
With increasing well-being awareness programs and government policies of banning smoking out in the open areas influencing sales of ordinary cigarettes, cigarette producing companies have seen an effect on their financials. There is a standard transformation with heading cigarette manufacturers like Lorillard and Philip Morris International now focusing on E-Cigs.
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The open door here
The business for E-Cigs is immense. Bloomberg estimates that E-Cigs sales will surpass the sale of customary cigarettes by the middle of this century.
Wells Fargo projects E-Cigs retail sales to surpass $10 billion by 2017. Presently, the E-Cigs business is anticipated at around $2 billion, which is a small portion of the conventional cigarette business of $800 billion, yet the pattern is changing here as said prior.
Lorillard made its prerogative in this developing market by obtaining Blue Cigs in 2012 and turned into the first heading tobacco organization to enter this business sector. Presently, Lorillard's stake in the U.s. retail showcase for E-Cigs is around 49%, making it the pioneer of this segment. This was not by any means the only acquisition - the success story of E-Cigs inspired Lorillard to procure an alternate organization known as Skycig. This strategic move of obtaining Skycig increased its foot shaped impression in the U.k. E-Cigs business sector, furthermore improved its worldwide presence.
Lorillard, as well as considerably other tobacco companies such as Philip Morris International also have plans to step into this region. The organization has formally published that it will dispatch E-Cigs in 2014. Both these companies feel that E-Cigs will positively impact their top and bottom lines later on.
E-Cigs helping Lorillard's revenue
E-Cigs have effectively started helping for Lorillard. It recorded almost 3.4% of revenue from this classification in the previous quarter out of a sum of $5.2 billion. With E-Cigs still in the nascent stage, the future seems splendid for Lorillard.
The rise in sales of the Blue E-Cigs brand is a result of various brand building activities directed as a strategic showcasing move by Lorillard. The benefits of these brand building activities might be seen in the last quarterly result.
With a strong distribution of 127,000 retail outlets, the dispatch of new brands and lower prices, alongside rechargeable kits, Lorillard is in an extraordinary position to profit from this business sector.
Philip Morris joining the race
Lorillard may possibly be seeing an increase in revenue, however an alternate pioneer in the same segment has an alternate story. The sales figures of Philip Morris are not all that appealing in terms of development as contrasted with Lorillard. Its volumes in the previous quarter decreased because of various universal levy policies. An increase in excise assess in countries like Russia and Philippines and tight advertising restrictions in Australia influenced the sales of Philip Morris.
To address these concerns, in the recent a large portion of the year, Philip Morris is good to go to wander into the E-Cig business. It at first plans to present E-Cigs in various cities in the U.s. with plans for a national dispatch by 2015, after it has led all tests and experiments.
Also, a strategic partnership of Philip Morris with Altria Group will be focused on selling E-Cigs and smokeless products comprehensively. With this partnership, Altria gets exclusive rights for the U.s. to sell option warmed tobacco products produced by Philip Morris. In exchange Philip Morris gets exclusive worldwide rights to sell E-Cigs produced by Altria.
Electronic cigarettes have a ton of advantages over conventional cigarettes. They are generally healthier, cost powerful and have a huge market in front of them as every smoker is a potential e-cigarette purchaser. Consequently, investors who are ready to cash in on this pattern would do well by investing in either Philip Morris or Lorillard. Lorillard could be the favored decision of most as the organization as of now has its feet in this business while Philip Morris is just starting off, giving Lorillard an essential headstart.