Imperial Tobacco Group Plc, the maker of Gauloise and Davidoff cigarettes, said full-year earnings jumped 8 percent as the company raised prices and sold more economy-brand products.
Operating profit, or revenue minus the cost of sales, distribution, advertising and other expenses, rose to 2.53 billion pounds ($4 billion) in the 12 months ended Sept. 30, the Bristol, England-based company said today in a statement. Imperial Tobacco shares gained the most in almost a year.
Tobacco companies will have pricing power to increase revenue as the number of cigarettes sold worldwide rises 2 percent annually in the next five years, market research company Euromonitor said in September. Imperial Tobacco said it charged more for cigarettes in the U.K., Germany and other European markets, while volume for its regional value brand JPS, which gained market share, rose 13 percent.
“We have a portfolio that is very much aligned to where the consumer is going in these environments,” said Chief Executive Officer Alison Cooper in an interview with Bloomberg Television, adding the company may raise prices further.
“The pricing environment remains robust,” Julian Hardwick, an analyst at Royal Bank of Scotland, said in a research report today. He expects Imperial Tobacco to meet its “medium-term” revenue target of 2 percent to 4 percent growth. Hardwick, who has a “buy” recommendation on the stock, said the shares are undervalued.
Imperial Tobacco rose as much as 3.5 percent to 2,067 pence, the biggest intraday jump since Nov. 10, 2009, and was up 2.2 percent as of 1:20 p.m. in London trading, valuing the company at 20.8 billion pounds. The stock has gained 4.1 percent this year, lagging behind the 21 percent jump at larger competitor British American Tobacco Plc.
Net income more than doubled to 1.51 billion pounds from 663 million pounds a year earlier. Profit beat the 1.42 billion- pound average estimates of nine analysts. Earnings in fiscal 2009 were held back by a 660 million-pound loss on financial hedging, while derivatives in the year through Sept. 30 produced a 210 million-pound gain.
Price increases and cigarette and fine-cut tobacco sales helped compensate for a 4.2 percent decline in Imperial Tobacco’s cigarette volume as economic conditions limited consumer spending in Spain, the U.S., Russia and Ukraine, the company said. Sales climbed 6.2 percent to 28.2 billion pounds while net revenue from tobacco increased 3.5 percent to 7.06 billion pounds.
Imperial Tobacco plans a full-year dividend of 84.3 pence per share, an increase of 15 percent.
Cost savings since the company’s acquisition in 2008 of Madrid-based Altadis, the maker of Fortuna cigarettes, have totaled 300 million euros ($421 million), including 110 million euros in fiscal 2010, Imperial Tobacco said today. The manufacturer said it will achieve the takeover’s savings goal of 400 million euros by its September 2012 deadline.
Net debt was scaled back by 14 percent to 9.3 billion pounds last year. Imperial Tobacco’s priority is to pay off debt from the Altadis purchase, after which acquisitions “are going to be back in the mix very imminently,” CEO Cooper said.