British American Tobacco Profits Grow On Higher Pricing

Last week, British American Tobacco reported the company’s results for nine months to September 30th, posting 7 percent growth at constant exchange rates and on organic basis, due to high pricing, even despite volumes went down and economic conditions remained challenging. Nicandro Durante, BAT Chief Executive declared the tobacco giant eyes another year of profits growth.

According to Durante, whereas the challenging market conditions continued to affect smokers in many markets, other markets are demonstrating growth. Price increases driven by excise tax growth will continue to impact on tobacco industry volumes, yet, the company managed to achieve strong performance with Global Drive Brands and reached solid growth in profits.

BAT released an interim management statement for three quarters, saying that it managed to increase overall market share in the main 40 markets thanks to continued growth of market share of its key brands.

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Lorillard Inc.’s Second-quarter Net profit Increases

Cigarette manufacturer Lorillard Inc.’s second-quarter net profit increased more than 10% as it sold Newport and Maverick cigarette brands at higher prices.

The third largest tobacco company cautioned that its third-quarter cigarette volumes will be affected because wholesalers stocked more than usual last year, and that could damage its earnings.

Lorillard gives significant attention to promotion of its brands, most of all on it currently launched non-menthol version of Newport.

The manufacturer didn’t give any guidance for this particular quarter.

Its shares dropped $5, or 4.4 %, ending trading at $107.29.

Investment analyst Vivien Azer declared that the company’s shares were under considerable pressure due to concerns about increase slowing down in the second half of the year, but the sell-out is “overdone.”

Lorillard spokesman stated that company’s net profit increased to $291 million, or $2.05 per share, for the period till June 30, up from $263 million, or $1.73 per share, a year earlier. The per-share figure was lifted due to lower number of outstanding shares.

The volume of cigarettes Lorillard sold increased about 10% to approximately 10.8 billion cigarettes on profits of 9.6 % from its Newport brand and nearly 21 % for its lower-priced Maverick brand, while it expected a 1.3 % decrease for the whole industry.

According to the company’s representative their non-menthol Newport cigarettes, launched in November, presented the bulk of the increase in Newport shipments during the quarter, but it also underlined that the price of promoting it affected its profit.

Competitors Reynolds American Inc. and Altria Group Inc. both declared selling fewer tobacco products in the same quarter.

Increased unemployment and growing cigarette prices and taxes have led many smokers to switch to lower-priced brands during the recession trying to save money. Lorillard’s Maverick and Reynolds American’s Pall Mall have been among the beneficiaries.

The majority of tobacco enterprises have been increasing prices and dropping costs in order to maintain profits up, as the recession and reducing demand affected cigarette sales. Tax increases and smoking bans have made cigarettes industry stricter.

Lorillard’s retail market share raised 1.4 points within the quarter to 14.2 % of the U.S. market. Newport’s share of the menthol cigarettes was firm at 36.6 %, while its main competitors have increased efforts to confer some of the raising menthol market.

The company’s gross revenue dropped to 35.4 % due to promotional costs for Newport non-menthol.

Lorillard it is the last one of the country’s largest tobacco companies to present second-quarter results.

The first was Altria Group, holding company of Marlboro producer Philip Morris, which declared that, while cigarette sales dropped, the prices were increasing. The top-brand Marlboro also lost its market share.

British American Tobacco Highlights of 1Q 2011 Performance

Nicandro Durante, recently appointed BAT CEO said that British American Tobacco showed a strong performance in the first quarter of 2011, with the market share of the global drive brands going up by 9 percent and the rate of the organic volume decrease slowing down. He mentioned that the innovative processes applied by the company allow growing market share in the top markets the company is presented it. On the same time, subsidiary volumes were down by 2.4 percent, equaling 164 billion, with organic volumes decreased by 1.8 percentage points.

Highlights of Performance

British American Tobacco performed strongly during the first three months to April 1st, achieving organic volume increase. The organic sale volume went up by 5 percent in the first quarter in permanent currency terms, demonstrating positive pricing environment. Estimated revenue at both present and constant rate was in line with previous year, which mostly resulted from the sale of Lyfra, the end of Gauloises Blondes in Germany, and cessation of the promotion programs in Brazil, all taking place in 2010.

Overall volumes from subsidiaries totaled 164 billion, declining by 2.4 percent compared to the same period in 2010, whereas organic volumes declined by 1.8 percent. The industry volumes decreased considerably in such markets as Spain, Australia and Mexico.

Nevertheless, BAT managed to increase market share in these markets. The company’s Global Drive Brands (Pall Mall, Dunhill, Lucky Strike and Kent) showed a very strong performance achieving 9 percent volume growth and share increase in several major markets.

Kent achieved 16 percent growth, contributed by share growth in South Korea, Russia, Ukraine and Romania. Dunhill share rose by 6 percent due to growth in Russia, Brazil, Romania and Taiwan. Pall Mall showed a double-digit growth as well due to great performance in Turkey, Romania and Pakistan. Lucky Strike also performed well, despite volume cut in Spain.

Trading Conditions

The strong performance was reached in trading environment which is still challenging, with industry volumes falling in several markets. Nevertheless, British American Tobacco innovative strategy contributed to the market share increase in all regions the company is presented. The Group achieved shipments growth in Japan, where the trading conditions remain significantly challenging after the massive earthquake and tsunami. The company continues to improve its cost base and applies other initiatives, such as closing facilities in Europe and downsizing factories in Australia, in order to balance its expenses.

Financial Position

The company has not scheduled any material events, significant transactions and financial position changes since the end of the previous year, other than mentioned in the present statement.

In addition, the Group established Nicoventures Limited, to offer adult smokers a wide range of alternative products that will provide most of the experience they get from cigarette smoking, but without significant health dangers.

British American Tobacco Earnings Report for 9 months of 2010

British American Tobacco, the second-largest privately-owned tobacco company in the world, reported that cigarette volume shipments totaled 526 billion within the nine months to September 2010, going down by 1.3 percent versus the comparable period last year.

According to British American Tobacco Report, the company distributed 1 percent fewer cigarettes during the first three quarters of the year than during the nine months of 2009, however revenue went up due to positive currency fluctuation and acquisition of Indonesian tobacco company PT Bentoel last year.

Despite the decline in total volume, sales of the company’s major Global brands – Pall Mall, Lucky Strike, Dunhill and Kent went up by 8 percent. Sales of BAT’s four global brands rose by around 8 percent, a growth that flattered by rising consumer sales in Japan on the threshold of a large price increase caused by excise tax hike.

Organic volumes went down by nearly about three per cent in comparison to the same period a year earlier, driven by market dimensions drop and growth of black market sales in several countries. Sale volumes were as well affected by the ruined sales in Pakistan due to the horrible floods across the country. (Organic growth is growth resulting from a company’s current businesses, in contrast to Inorganic growth, which is based on various mergers and acquisitions.)

Sale volumes in Asia-Pacific region reached 141 billion, going up by 5.2 percent; Volumes in Western Europe fell by 8.2 percent to 90 billion cigarettes; volumes in Eastern Europe lost 2.1 per cent going down to 93 billion; sales in Americas went down by 0.9 percent totaling 110 billion; and volumes in Africa and Middle East region fell by 3.1 percent to 92 billion.

British American Tobacco Chief Executive officer, Paul Adams stated that trading conditions have been challenging, as industry volumes declined in a several important markets such as Romania, Pakistan, South Africa, Turkey, and Germany. In several markets, he said, there was reported down-trading tendency driven by contraband products resulting from the pressure on consumers’ available income, aggravated by significant increases in excise taxes. This especially impacted the low cost segment.

Dunhill sales grew by approximately 21 percent, in major part due to brand migrations in some markets, including Brazil and South Africa; Kent and Lucky Strike sales each went up by around two per cent; and Pall Mall’s sales rose by nearly seven per cent.

“The challenging economic environment, product price increases driven by tax rises and growing rate of unemployment have resulted in some declines in our sale volumes,” stated Paul Adams. “The recession’s effect on consumers is still there and demonstrates signs of diminishing. “However we have managed to increase market share in the most important markets, expanded the major Global Brands and reached good revenue growth.”

New names in response to federal regulations

Entering a common smoke shop, you will never ever see habitual blue packages with Pall Mall Lights written on them; but you don’t have to be worried, they were not phased out from products, but simply renamed to Pall Mall Blues. Another popular Reynolds American brand Salem Lights, earlier selling in green packages, are currently packed in white and pastel colors and the name merged to Salem Gold Box.

With the modifications in the names of the brands which awake associations with peace and safety, the leading cigarette makers headed by Reynolds have turned their heads to traditional strategies of color-use marketing, after the strictest restrictions in the history of US tobacco market were approved back in July.

The strategy is rather simple – such terms like lights and ultra lights that would be banned next year should be changed to colors in order to trigger associative thinking relating colors to the strength of cigarettes.

However, anti-smoking advocates criticize the use of colors and nicknames, arguing that cigarette makers are simply trying to avoid certain provisions of Tobacco Control Act approved by the Congress in summer and giving the Food and Drug Administration the authority to regulate tobacco products, including the ban on marketing certain cigarettes as safer ones, which enters into effect on June 22, 2010.

RJ Reynolds, maker of Pall Mall, Camel, Salem and a dozen of other brands denies any accusations in attempting to infringe the regulation, and states that change in brands’ names is explained by the need to help their customers to locate their favorite cigarettes among other ones.

But public health experts say that similar changes have already been applied by cigarette industry in the countries with the most severe tobacco regulations. Studies fulfilled in Canada and UK, where the restrictions are a way more rigorous in comparison with the United States, demonstrated that smokers thought that names like “white”, “silver” were safer for health and less addictive than regular cigarettes.

The FDA spokesperson said that agency is aware about the color use and added that the labeling provision would be reviewed and colors could as well be banned when the restrictions comes into effect next summer.

RJ Reynolds spokesman David Howard said that such sudden and immediate change is conditioned by both federal restriction and a ruling currently pending in federal court.

Reynolds analysts surveyed smokers to compile their preferences of the possible designs for the top brands. The Camel-maker made use of surveys and polls to develop new designs for the brands. The new packs are of principal brands like Salem and Pall Mall already selling in the stores, while modified Camels and Winstons will arrive next month.

Philip Morris USA, Reynolds American principal rival and the largest US cigarette maker refused to reveal plans of possible color use, but said that they are planning to change packs in 2010.

Prof. Ben Brown, head of College of Business at the University of Delaware said that usage of colors in names of particular products have been the most efficient strategy in keeping customers with a particular brand, when there would be no lights and ultra lights on the shelves.