BRITISH AMERICAN TOBACCO P.L.C. By Elena Vardon
British American Tobacco kept its 2024 outlook unchanged but forecast a softer first-half performance as it continues to cope with macroeconomic pressures in its key U.S. market.
The cigarette maker--which houses the Kent, Dunhill and Lucky Strike brands--reiterated that it expects its results to be weighed to the second half due to planned investment phasing and slow recovery in the U.S.
Smokers switching to cheaper, nonpremium brands and a rise in illegal disposable vapes have hindered the performance of its largest market and led to a large write-down of some of its brands in December. BAT expanded in the country--which made up 44% of its 2023 group revenue--through its takeover of Reynolds American in 2017.
"Our guidance also reflects ongoing macro-economic pressures, particularly in the U.S. market and continued lack of effective enforcement against the growing illicit vapour segment," Chief Executive Tadeu Marroco said.
Due to these continuing pressures, BAT expects its first-half revenue and adjusted profit from operations to be down by low-single digits on an organic and constant currency basis. This leaves the group with a lot to do in the second half, Citi analysts wrote in a note to clients.
BAT and other tobacco giants have been trying in recent years to pivot to cigarette alternatives such as e-cigarettes and heated tobacco devices amid a decline in traditional smoking. "With the U.S. tobacco and vape industry undergoing a shift in normal buying patterns, it's only natural for wholesalers to change their ordering habits and that's hurt British American Tobacco," AJ Bell investment director Russ Mould said in a market comment.
The group said its U.S. combustibles industry volumes were around 9% lower year to date as customers remain stretched. "The U.S. is still one of the most affordable markets for cigarettes in the world...The pricing environment has been very solid," Marroco told analysts.
For the year, the company forecasts that global tobacco volumes will slump 3%.
"We expect growing momentum in the second half, enabled by the investments we are making today," Marroco added, pointing to planned product launches in its noncombustibles segment.
BAT maintained its guidance of low-single-digit organic revenue growth for 2024. It also expects low-single-digit growth in adjusted profit from operations, with a 2% hit from transactional foreign exchange impact, it said Tuesday. The FTSE 100 group tweaked its translational foreign exchange headwind hit, which it now sees at around 4% compared with 3% previously, it added.
Analysts estimate it will make 27.60 billion pounds ($35.35 billion) in total organic revenue and adjusted operating profit of GBP12.48 billion for the year, according to the latest company-compiled consensus which dates from late January.
The tobacco group continues to target a return to 3% to 5% revenue growth and mid-single digit adjusted profit from operations growth by 2026.
Shares in London had fallen around 1.3% to 2,404 pence in mid-morning trading. The stock has gained 4.7% since the start of the year.
Write to Elena Vardon at elena.vardon@wsj.com
(END) Dow Jones Newswires
06-04-24 0550ET
