American multinational tobacco producer Philip Morris International (NYSE:PM) is set to unveil its third quarter of 2018 earnings Thursday, as the industry undergoes radical shifts in product offerings, innovation and regulatory scrutiny.

PM had cut its earnings outlook in Q2 2018 to reflect the effect of certain product and marketing initiatives, including the end-of-year debut of its next generation of reduced-risk IQOS devices.

IQOS is designed to heat special-manufactured tobacco units up to 350°C, without combustion, fire, ash, or smoke.

The company said the move requires reducing its inventory of current devices, with the ramp-up of the new models anticipated in 2019.

While PM expects to earn between US$5.02-5.12 per share for the full year 2018, down from its prior guidance of US$5.25-5.40, the range remains well above (+29-32%) its 2017 performance level.

Gimme Credit analyst Carol Levenson recently noted that although PM is “facing much slower growth” in Japan – its lead market for the IQOS product – it is “important to remember” that heated tobacco units only represent 5% of the firm’s volume.

In Q2, combined volume rose 0.9%, with cigarette volume down 1.5% and heated tobacco unit volume up nearly 75%, “a dramatically slower rate of growth than in previous quarters,” Levenson continued. She added, however, that reduced-risk products (RRPs) are “beginning to make a difference as they are introduced in select markets, and are offsetting to some extent the secular cigarette volume decline.”

Targeting health benefits

Meanwhile, PM appears to be exploiting the purported health aspects of IQOS, while it aims to reinvigorate its sales in Japan.

In June, PM – the New York-based maker of iconic brands, including Marlboro and Chesterfield – noted there were “positive results” from a clinical study on IQOS, which claims to have demonstrated improvements in the biological response of people who switched from smoking to the smoke-free product for six months.