BAT Premium Shipment Growth Slows in First Quarter

Source from:  Bloomberg 05/08/2009

British American Tobacco Plc, Europe's largest cigarette maker, said growth in shipments of premium cigarettes decelerated in the first quarter as the recession led smokers to buy cheaper brands. Excluding acquisitions, sales quantities were "slightly ahead" of a year earlier, the London-based company said in a statement today. Shipments of premium brands, which include Kent, Dunhill and Lucky Strike, rose 5 percent last year. Volume growth of Kent, BAT's largest brand, slowed to 3 percent from 18 percent in 2008, the tobacco company said today. Smokers are switching to cheaper brands and cigarette smuggling is increasing in places such as Germany and eastern Europe as the recession leads consumers to tighten their purse strings. Philip Morris International Inc. has said first-quarter shipments of Marlboro declined 2.4 percent. BAT's volumes were "a little below expectations," wrote David Hayes, an analyst at Nomura with a "reduce" rating on the stock. "The market may have some concern that the comments on the illicit trade growth" mean that shipments in Brazil may have slowed following a price increase in May, he added. BAT rose 12 pence, or 0.8 percent, to 1,595 pence at 10:11 a.m. in London trading. The stock had dropped 18 percent in the past 12 months, while Philip Morris dropped 28 percent. Trading conditions "became tougher during the quarter with lower industry volumes in a number of key markets," BAT said. The company no longer reports full quarterly results. Turkish Benefit Among BAT's other premium brands, Lucky Strike shipments rose 4 percent, slowing from 9 percent growth in 2008. Dunhill rose 8 percent, accelerating from last year's 7 percent pace. BAT boosted total shipments 7 percent through the acquisitions of Turkish cigarette maker Tekel and Skandinavisk Tobakskompagni A/S last year. Chief Executive Officer Paul Adams has exceeded BAT's goal of raising per-share profit excluding one-time items by a "high single-digit" amount every year since starting the job in 2004. Earnings per share rose 19 percent on that basis in 2008. "Our leading market positions and our broad geographic spread give us confidence that we should deliver another year of good earnings growth," Adams said in the statement today. Volumes of Kent, Lucky Strike, Dunhill and Pall Mall increased 7 percent, decelerating from 2008's 16 percent pace. Those four brands account for about a quarter of BAT's total. Tobacco companies have made acquisitions and raised prices to combat falling smoking rates in the U.S. and western Europe. BAT spent about $5 billion in total for Tekel and Skandinavisk Tobakskompagni, gaining control of 36 percent of Turkey's cigarette market and 60 percent of Scandinavian sales. More than three-fifths of male Turks aged 15 and older are smokers, according to the World Health Organization.