Tobacco producer British American Tobacco (BATS) delivered a mixed second-half trading update, on the one hand forecasting group revenue towards the top end of guidance while on the other hand forecasting new product sales at the bottom end of its target range.
The shares, which opened lower, clawed their way back to positive territory up 2% to £30.52 by mid-morning.
In common with its peers, BAT saw revenues from cigarettes and cigars rise as higher prices and an improved product mix offset a fall in volumes. For the full year the combination of price increases and product mix lifted selling prices by 7% while volumes fell by 3.5% in line with the industry average. Volumes are expected to fall between 4% and 6% next year.
Revenue growth for the group as a whole is expected to be in the top half of management’s 3% to 5% range while growth in operating profits is seen at the top half of its 5% to 7% target range.
SLOWER NEW PRODUCT GROWTH
On the other hand growth in New Products is seen at the lower end of the firm’s 30% to 50% range reflecting a slowdown in the US vaping market.
Increasing political and public resistance in the US towards flavoured vaping products which appeal to young consumers has taken some of the steam out of the market. BAT says that increased scrutiny ‘should lead to a better and stronger regulatory environment’ in which it is ‘well placed to succeed’.
Outside the US, the firm’s Glo thermally-heated products are catching on in Japan and eastern Europe with new ranges being rolled out, while Lyft nicotine pouches continue to sell well in Scandinavia where there is a big market for oral products.
BAT shares received a boost earlier this month when US regulators shelved plans to force tobacco makers to cut the level of nicotine in cigarettes.
The proposal, tabled two years ago the US Department of Health, could have had a major impact on cigarette sales so the fact that it is no longer seen as a priority was seen as good news for tobacco firms.
