Fitch: Looming New Regulations Could Change U.S. Tobacco Industry Landscape
CHICAGO -- December 5, 2013
The credit outlook for the U.S. tobacco industry is stable although previously
benign regulatory risks could arise in 2014, according to Fitch Ratings.
Fitch sees longstanding uncertainty regarding potential U.S. regulation of
menthol cigarettes may be clarified in 2014 following the recent expiration of
an FDA comment period. Furthermore, new rules are nearing for the sale and
marketing of E-cigarettes, a product category that has seen significant growth
in the U.S. Stronger regulations of the currently unregulated product could
impede growth prospects.
Secular cigarette volume declines in the range of 3% to 5% have been somewhat
offset by breadth of the product offerings, historically most evident at
Altria and Reynolds American. Lorillard, the least diversified large tobacco
company, was the first to enter the E-cigarette market with the purchase of
blu E-Cigs in 2012. Fitch believes that industry sales will benefit from
positive price realization in the tobacco cigarette market during the coming
year despite the highly competitive environment.
Fitch also notes that tobacco manufacturers have successfully managed
The tobacco industry has flexibility to return significant cash flows to
shareholders via large dividend payments and aggressive share repurchasing.
Fitch expects the industry to maintain its shareholder-friendly posture
throughout 2014 with dividend pay-outs in the rage of 70%-80%, supplemented by
The full report '2014 Outlook: Tobacco Products' is available at
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2014 Outlook: Tobacco Products
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Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Brian Bertsch, New York, +1 212-908-0549
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