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Philip Morris Sees $700 Million Boost From iQOS Smoking Device

Philip Morris International Inc. (PM), the world’s largest publicly traded cigarette maker, forecast that reduced-risk products will start boosting profit in three to four years as it prepares to introduce a tobacco-heating device in Japan and Italy.

The iQOS product, which heats rather than burns tobacco, will be available from the fourth quarter in certain cities in those countries, the New York-based maker of Marlboro cigarettes told investors today at a presentation in Lausanne, Switzerland. Philip Morris will produce Marlboro HeatSticks that can be inserted into the device to give a sensation of tobacco flavor.

Upon reaching 30 billion units of sales, iQOS would boost profit by $700 million at margins similar to cigarettes, Chief Executive Officer Andre Calantzopoulos said today as the company also lowered its annual earnings projection.

Philip Morris has spent about $2 billion over more than a decade on development of reduced-risk tobacco products and is entering a market that’s already seen a proliferation of e-cigarettes. Calantzopoulos said today that the tobacco industry is at “the early stages of a transformational process” as he also announced the purchase of Nicocigs Ltd., a U.K. maker of e-cigarettes.

iQOS will use tobacco to appease smokers’ cravings for the taste of a conventional cigarette. The device looks like a hollowed-out fountain pen. The tobacco unit is inserted and heated to generate a smoking aerosol. The temperature is “significantly below” what’s generated by a traditional cigarette, PMI has said.

Forecast Cut

The product will go on sale nationwide in both Italy and Japan next year, Philip Morris said.

Unfavorable currency shifts and price discounting at the budget-end of the market in Australia will weigh on earnings this year, the company also said today.

Diluted per-share profit will be $4.87 to $4.97, it said, compared with a forecast of $5.09 to $5.19 made on May 7. Philip Morris also said it will take a $495 million charge for ending production in the Netherlands.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: David Risser at drisser@bloomberg.net Paul Jarvis

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