Souza Cruz Falls as Cigarette Prices Sap Profit: Sao Paulo Mover

Souza Cruz SA, the fourth-biggest tobacco company in the Americas, slumped after profit trailed analysts’ estimates as an increase in cigarette prices and the slowdown in Brazil’s economy curbed sales.

Shares slid 4.8 percent to 26.80 reais at the close of trading in Sao Paulo, the steepest drop on a closing basis since October 2011. The Ibovespa stock benchmark retreated 1.3 percent.

Souza Cruz’s sales dropped 1.3 percent in the three months through June from a year earlier to 1.55 billion reais ($681 million). Brazil’s slowing economic growth and accelerating inflation contributed to a drop in revenue, Souza Cruz said in a regulatory filing after the market closed yesterday.

The decline in revenue shows that demand for cigarettes is more affected by price, according to Vitor Paschoal, an analyst at the investment bank Itau BBA.

“The stock isn’t a defensive investment like it was in the past,” Paschoal, who has a recommendation equivalent to sell for Souza Cruz, wrote in a research note to clients today.

Adjusted net income declined to 436 million reais from 448 million reais a year earlier. The average estimate among three analysts surveyed by Bloomberg was 445 million reais.

Brazil’s first-quarter economic growth unexpectedly slowed to 0.55 percent from the previous three-month period. Gross domestic product climbed 0.9 percent last year, the worst performance since the 2009 recession. Annual inflation accelerated to 6.7 percent in June, higher than the 6.5 percent upper limit of the central bank’s preferred range.

Shares of Rio de Janeiro-based Souza Cruz have lost 13 percent this year, while the Ibovespa has declined 20 percent during the same period.

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