BAT Lowers Outlook for New Products on U.S. Vaping Slowdown
BAT, however, maintained its forecast for high-single-digit earnings per share growth at constant currencies.
(Bloomberg) --
British American Tobacco Plc, the maker of Lucky Strike cigarettes, lowered its outlook for full-year sales growth in smoking alternatives as health concerns and a price war weigh on U.S. e-cigarette sales.
Makers of vaping devices are vying for market share in the new business as BAT and rival Imperial Brands Plc have run recent promotions for starter kits priced as low as $1. Still, BAT Finance Director Tadeu Marroco reinforced the company’s earnings potential on a call, and the shares rose.
Following the outbreak of an illness linked to vaping and growing concerns about teenagers’ adoption of the practice, Massachusetts and New York City have moved to ban sales of flavored liquids for e-cigarettes. President Donald Trump has backed off from such a move, but has said his administration would raise the legal age to buy vaping products to 21.
More than 2,000 cases of a mysterious lung disease and 47 deaths have been reported in the U.S. related to vaping, according to the U.S. Centers for Disease Control and Prevention. Health officials are studying whether the cause is vitamin E acetate, which is added to dilute THC that some vapers are using.
Sales growth from new products, which also include heated tobacco and oral nicotine, will be in the lower end of a forecast range of 30% to 50%, BAT said. In August the company was guiding to the midpoint. It has spent more than $4 billion to grow in the new segment.
The stock gained as much as 2.4% Wednesday, erasing an earlier decline as BAT maintained its forecast for high-single-digit earnings per share growth at constant currencies. Finance Director Tadeu Marroco said the company is “on track for one of our best financial performances in many years,” speaking on a call with analysts.
While e-cigarette growth isn’t as strong as BAT hoped, that business is a relatively small and unprofitable one, overshadowed by traditional cigarettes, where BAT is raising prices more than 7% on average.
Tobacco companies are engaged in a land grab to establish market share in vaping as smokers increasingly switch to alternatives. BAT said its Vuse brand increased its market share in the U.S. to 17.5%, while Vype reached 11.8% in the U.K. and 19.2% in France.
BAT forecasts cigarette consumption to drop 5.5% in the U.S. this year and 4% to 6% next year. Marroco said BAT doesn’t expect any significant switch back to cigarettes from vapers in the U.S. and that a recent slight improvement in cigarette volumes is related to changes in pricing and not due to the vaping slowdown.
Michael R. Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP, has campaigned and given money in support of a nationwide ban on flavored e-cigarettes and tobacco.
To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman
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