Japan Tobacco's Quarterly Profit Drops 47% on Domestic Sales, Stronger Yen
Japan Tobacco Inc., the world’s third-largest publicly traded cigarette maker, said first- quarter profit fell 47 percent after domestic sales dropped and a stronger yen reduced the value of overseas earnings.
Net income dropped to 22.8 billion yen ($261 million) for the three months ended June, compared with 42.9 billion yen a year earlier, the Tokyo-based company said in a statement today. Last year’s profit was inflated by a one-time gain of 9.1 billion yen from the sale of corporate housing. Total sales rose 0.3 percent to 1.47 trillion yen.
Japan Tobacco said its cigarette sales in Japan may decline 16 percent this fiscal year as the government plans to raise taxes by 70 yen per pack in October. The maker of Mild Seven and Seven Stars will raise prices more than needed to compensate for the higher tax, as it also seeks to offset lower product sales.
Domestic cigarette sales slipped 7.9 percent in the first quarter, “primarily due to the on-going declining trend in consumption and was further depressed by the announcement of a forthcoming price increase,” the company said in the statement.
The company kept its annual earnings forecast unchanged. Net income will probably decline 3.9 percent to 133 billion yen for the year ending March, it said April 28. Sales may fall 2.5 percent to 5.98 trillion yen.
Japan Tobacco fell 1.9 percent to 287,000 yen at the 3 p.m. close on the Tokyo Stock Exchange before the company released its results. The stock has lost 8.3 percent this year, compared with a 5 percent drop in the broader Topix index.
Operating Profit
Operating profit fell 6.1 percent in the first quarter, as domestic sales slumped and the price of overseas tobacco leaf increased, Japan Tobacco said.
Sales after exercise taxes fell 0.6 percent to 601.4 billion yen. The company raised prices of cigarettes in Russia and other overseas countries, helping offset lower domestic sales, Japan Tobacco said.
Japan Tobacco was also hammered by a stronger yen, which has risen against all the world’s major currencies in 2010. A stronger local currency cuts the value of overseas earnings when repatriated. The company booked an exchange loss of 2.65 billion yen in the first quarter.
Japan Tobacco acquired RJR Nabisco’s international businesses, including the Camel and Winston brands, in 1999 and the U.K.’s Gallaher Group in 2007.
Earnings before interest, taxes, depreciation and amortization for Japan Tobacco’s international business rose 1.8 percent in dollar terms, the company said. The company boosted its market share in countries including Russia, Italy and France, it said.
The cigarette maker booked a one-time charge of 13.2 billion yen to settle claims with Canada that its JTI-Macdonald Corp. unit aided cigarette smuggling in the 1990s.
To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net
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