Higher cigarette prices help the maker of Lucky Strike raise profits
BAT is confident of resuming sales of flavoured e-cigarette pods in the US
Bengaluru — British American Tobacco (BAT) reported better-than-expected annual profits on Thursday, helped by higher pricing of its cigarettes, and said it is confident of resuming sales of flavoured e-cigarette pods in the US despite a ban.
Shares of the world’s No 2 tobacco company have risen nearly 14% in the past 12 months, partly due to the group’s low exposure to vaping in the US, where a backlash against e-cigarettes after several vaping-related deaths led to tighter regulation and a ban on selling pod-based e-cigarette flavours from this month.
“It’s not a ban forever,” chief marketing officer Kingsley Wheaton told Reuters, adding that BAT is confident its flavoured products will be approved by the US Food and Drug Administration (FDA) and go back on the market.
Despite the ban, the FDA will consider applications to sell these products and has given e-cigarette makers until May 22 to submit them. BAT said it is going to file applications for a range of flavours.
Shares in the maker of Lucky Strike and Dunhill cigarettes were up 2.5% after its results at £32.99 by 1027 GMT.
Since taking charge last April, CEO Jack Bowles has acknowledged that BAT was slow to react to the vaping craze in the US and has since promised to slim down BAT to concentrate on “new category” businesses.
The company did not give any guidance on Thursday for its new categories products for 2020. Jefferies analysts said it is prudent to let the year unfold.
BAT expects adjusted revenue growth for 2020 to be in the 3%-5% range, at constant exchange rates, with “results”, mainly in its new category business, to be weighted to the second half.
It said group revenue rose 5.7% to £25.88bn for the year ended December 31, compared with analyst estimates of £25.62bn, according to Refinitiv data. Revenue from its sales of traditional cigarettes grew 4.2% as it managed to raise prices in the US. BAT said the volume of sales in the global industry for cigarette and tobacco heating products would fall about 4% in 2020, with volumes in the US set to decline by about 5%.
“These are predictably solid results ... Tobacco faces many challenges, but BAT is navigating around them,” said Steve Clayton, manager of Hargreaves Lansdown’s HL Select funds.
BAT reported adjusted earnings per share of 321.6p for 2019, beating analysts’ estimates of 319.42p. It expects constant currency adjusted earnings per share growth for 2020 to be in high single digits.