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Philip Morris Expands Smoke-Free Offerings With KT&G Alliance

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Philip Morris International Inc. (PM - Free Report) is focused on expanding its smoke-free products category. In this regard, the company announced a partnership with South Korea’s KT&G to commercialize the latter’s smoke-free products outside the country.

Philip Morris’ deal with this South Korean nicotine and tobacco company will be effective for three years initially. This global collaboration aims at expanding the reach of KT&G’s smoke-free products to many other markets. The agreement doesn’t include the South Korean region or even combustible products. Currently, there are no plans to commercialize this South Korean company’s products in the United States.

With this deal, Phillip Morris can exclusively distribute KT&G’s current smoke-free products, as well as their evolutions, and continue distributing its own and other third-party products. Markedly, KT&G’s smoke-free products portfolio includes heat-not-burn tobacco systems (such as Lil Mini and Lil Plus); hybrid technologies, which unite heat-not-burn tobacco and e-vapor technologies (such as Lil Hybrid); and e-vapor products (like Lil Vapor).

However, the products sold as part of this collaboration will undergo the required assessments. Also, both companies will have to obtain any necessary regulatory approvals, which may be required.

Phillip Morris’ Efforts to Expand RRPs on Track

This alliance marks yet another move by Phillip Morris to grow the smoke-free category. In this respect, the tobacco giant’s IQOS continues to stand out and is gaining significant traction. In fact, the company is on track to launch IQOS MESH in the near term, which will widen its array of smoke-free products.

Notably, strong growth in IQOS boosted revenues in the reduced risk products (RRPs) unit, which increased almost 63.4% to $1,344 million in the third quarter of 2019. Moreover, heated tobacco unit shipment volumes of nearly 16 billion units surged 84.8% year over year. Management, then, estimated that approximately 71% of IQOS users have quit smoking.  

Among other initiatives, Philip Morris inked a deal with Canada-based Parallax that provides low-risk tobacco alternatives. To further propel growth of this category, the company launched ‘The Year of Unsmoke’ in April 2019. The action is aimed at creating a better future for smokers by encouraging them to either quit smoking or shift to low-risk alternatives.

Wrapping Up

Clearly, such efforts seem fit in the wake of reducing cigarette volumes, stemming from rising health consciousness and stringent government regulations. Shares of this Zacks Rank #3 (Hold) company have gained 13.7% in a year, almost in line with the industry’s growth.

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