(Reuters) – British American Tobacco (BAT), the world’s No. 2 tobacco company, warned on Wednesday of steeper declines in cigarette sales globally mainly due to waning demand in its main U.S. market, sending its shares down more than 4%.
A staff of British American Tobacco Japan demonstrates its new tobacco heating system device ‘glo’ after a news conference in Tokyo, Japan, November 8, 2016. REUTERS/Kim Kyung-Hoon
The maker of Lucky Strike and Dunhill cigarettes forecast global industry volumes to fall around 3.5% this year, with the U.S. expected to decline 4%-5%. The company previously forecast a 3% drop globally and 3.5%-4.5% in the United States.
Demand for cigarettes has been slowing, particularly in the United States, as smokers turn to alternatives such as e-cigarettes and vaping products, prompting companies to rapidly expand their non-cigarette products.
BAT said it would invest further in what it calls its “New Category” business and announced plans to consolidate the portfolio, which makes tobacco heating product glo and Vype e-cigarettes as well as snuff and nicotine pouches.
It forecast sales of vaping and e-cigarette products to accelerate in the second half of the year, with full-year revenue growth at the business expected to be in the 30% to 50% range on a constant currency basis.
Credit Suisse analysts said the forecast of a further decline in cigarette volume “is not a surprise given the year-to-date decline in the US is over 5%, although slightly questions management’s ‘feel’ for the market.”
BAT also said revenue growth in the “New Category” portfolio was approaching its annual guidance range, leading Liberum analysts to flag signs of some softness in the business.
But BAT reaffirmed full-year targets despite the challenges.
The company, whose shares are considered among safer “defensive” bets, has gained roughly one-fifth in value this year, as worries over U.S.-China trade war and global economic growth has led investors to pool money in stocks deemed less risky at times of uncertainty.
Wednesday’s declines took the stock to the bottom of Britain’s blue-chip index, putting it on course for its worst day in more than five months.
Reporting by Shashwat Awasthi and Muvija M in Bengaluru; Editing by Saumyadeb Chakrabarty and Edmund Blair