Japan Tobacco Net Forecast Misses Estimates on Stronger Yenby
Currency fluctuations erode gains from overseas sales volume
Price increase in Japan weighs on local demand for cigarettes
Japan Tobacco Inc., Asia’s largest listed cigarette maker, raised its full-year forecast by less than most analysts expected as a stronger yen eroded the value of overseas sales and price increases undermined domestic demand for cigarettes.
Net income will probably be 409 billion yen ($4 billion) for 2016, the company said in a statement Monday. That compares with the 419 billion yen average of 17 analyst estimates compiled by Bloomberg. The cigarette maker forecast annual profit at 399 billion in May, when it also set a sales target of 2.2 trillion yen. It lowered the sales outlook to 2.12 trillion yen on Monday.
Japan Tobacco, which has raised revenue from outside the country to about 60 percent of the total last year, compared with about 48 percent in 2011, said exchange rate fluctuations would probably pare adjusted operating profit by 111 billion yen this year. Still, the cigarette maker is “seeking further geographical expansion outside Japan,” Japan Tobacco Executive Deputy President Hideki Miyazaki told reporters Monday in Tokyo.
“Currency fluctuation is the issue everyone in the industry is facing and there’s nothing Japan Tobacco can do,” Yoshiyasu Okihira, a Tokyo-based analyst at SMBC Nikko Securities Inc., said by phone. “The overseas business itself looks resilient as a result of their investments.”
A shrinking population and rising concern about the health risks of smoking in Japan are sapping demand, prompting the company to pursue expansion in faster growing markets. Japan Tobacco agreed to pay $510 million for a 40 percent stake in Ethiopia’s National Tobacco Enterprise last month, after completing a deal in January to buy the international rights to Reynolds American Inc.’s Natural American Spirit brand.
Demand is “strong” in Europe, the Middle East, Africa and Asia, Miyazaki said. The company left its annual dividend forecast at 128 yen per share for this year.
Japan Tobacco shares are down 9.5 percent so far this year, less than the 15 percent drop in the benchmark Topix index.