British American Tobacco Plc (BATS), Europe’s largest cigarette maker, said shipments declined during the first nine months of the year because of lower consumption in Brazil and western Europe.
The quantity of cigarettes sold dropped to 517 billion from 523 billion a year earlier, the London-based company said today in a statement. That missed the 521 billion median estimate of eight analysts surveyed by Bloomberg. Excluding acquisitions and disposals, the selling volume declined 1.8 percent.
Shipments in western Europe declined 5 percent, while volume fell in Brazil after a price increase in May. The maker of Lucky Strike and Pall Mall cigarettes has raised prices to offset falling tobacco consumption and increased government restrictions on smoking. The tobacco market “continues to be challenging, with industry volumes under pressure” and expansion of illicit trade remains a threat, BAT said.
Conditions in Brazil are “deteriorating” after the 21 percent price boost, Nomura analyst David Hayes said in a note published prior to the results. “The government has put into place a number of interventions to try to tackle illegal trade, but how these will play out remains to be seen. Brazil is a key watch-out going forward.” Brazil accounts for about 10 percent of BAT’s volume, he said.
BAT also posted declines in Japan, Italy, Turkey and Egypt, which offset gains in Bangladesh, Vietnam and Pakistan. The company’s four core brands, which include Dunhill and Kent, posted a volume gain of 3 percent, a slowdown from the 8 percent advance in the same period last year.
“Economic recovery remains fragile this year and difficult trading conditions persist in many parts of the world,” Chief Executive Officer Nicandro Durante said in the statement. “However, pricing remains strong.”
Philip Morris International Inc., the world’s largest publicly traded tobacco company, last week reported third- quarter profit that trailed estimates after sales tumbled 15 percent in the European Union, where smokers have cut back or switched to contraband cigarettes or roll-your-own varieties.
Hayes said BAT is in a “better place” in Europe as 22 percent of its profit comes from that region, a lower share than both PMI and Imperial Tobacco Group Plc (IMT), the U.K.’s biggest tobacco maker.
Governments from Europe to Asia have toughened restrictions on smoking. Australia this year became the first country to require cigarettes to be sold in plain packaging without any company logos. New Zealand and the U.K. are among countries whose governments have indicated interest in implementing similar action, which takes effect in Australia Dec. 1.
Cigarette makers including BAT and New York-based PMI are also battling a smoking crackdown in Russia, the biggest tobacco market after China, whose government is pushing an eightfold increase in cigarette taxes along with a bill that bans smoking in public places and cigarette sales in kiosks. BAT has about 21 percent of the Russian cigarette market, behind Tokyo-based Japan Tobacco and PMI.
BAT said nine-month group revenue rose 4 percent at constant exchange rates.
The company said it has bought back 30 million shares so far this year for 978 million pounds ($1.6 billion).
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