Tobacco Companies Biggest S&P 500 Decliners

Source from:  Financial Times‎ 04/14/2016

Shares in tobacco companies are getting smoked on Wednesday as the consumer staples sector took a hit and concerns mounted over potentially tighter regulations for the industry.

Reynolds American, the tobacco company behind brands like Newport and Camel, was the biggest decliner on the S&P 500, with shares falling 4.5 per cent to $48.92.

Meanwhile, shares in rival Altria Group, the company behind John Middleton, fell 4 per cent to $61.18. And shares in Philip Morris declined 1.7 per cent to $99.95.

Concerns about so-called deeming regulations weighed on the shares. This regulation, which could come into effect by mid-2016, could see e-cigarettes, hookah tobacco, cigars and nicotine gels classified as tobacco products by the Food and Drug Administration subjecting them to tighter regulatory scrutiny and making it more expensive for companies to market them.

Traditional tobacco companies made an aggressive push into products like e-cigarettes in an attempt to diversify, as consumers have opted for healthier lifestyles, choosing to give up smoking cigarettes.

A Reuters/Ipsos poll conducted last year showed that 10 per cent of US adults now 'vape', compared with 2.6 per cent according to a US government estimate in 2013.

Chris Growe, an analyst at Stifel, said earlier this week:

We have been anxiously awaiting the announcement of the Deeming Regulations for the better part of the past three years and the FDA seems prepared, finally, to release those regulations further regulating the E-vapor market. We believe this will have an adverse effect on the growth of the category in 2017 and going forward although the exact regulations are unknown at this time and we will assess their impact once they are formally announced.

"We believe this is partially due to weakness across consumer staples, though a Bloomberg article on pending deeming regulations, does seem to be weighing on sentiment," said Vivien Azer, an analyst at Cowen & Co. She added that the concerns are "overblown". The S&P 500 consumer staples sector was down 1 per cent for the day.

The S&P 500 tobacco industry index, which includes just Reynolds America, Phillip Morris and Altria Group, has posted seven consecutive years of annual gains.

The index has been up more than 27 per cent since the start of 2015, compared with a less than 1 per cent gain for the benchmark S&P 500. Enditem