BAT Shipments Drop for First Time in Almost Two Years

Source from:  Bloomberg 10/29/2009

British American Tobacco Plc, Europe's largest cigarette maker, said shipments declined for the first time in almost two years during the third quarter as markets deteriorated from Brazil to Japan and South Africa. The quantity of cigarettes sold in the three months ended Sept. 30 fell 2.6 percent to 185 billion, the London-based company said today on its Web site. Nine-month shipments rose 2 percent to 533 billion, weakening from 5 percent growth in the first half and 7 percent in the opening quarter of the year. BAT Chief Executive Officer Paul Adams said consumers are finding economic conditions "difficult" as unemployment rises. 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. "This statement had a more bearish tone than previous ones," Adam Spielman, an analyst at Citigroup Inc., said in a note. "The main problem was eastern Europe, but also the market is declining on Japan and Brazil, and now also in South Africa." Citigroup has a "buy" recommendation on the shares. BAT fell 33.5 pence, or 1.7 percent, to 1,957 pence in London trading, the steepest drop since Sept. 3. Excluding acquisitions, volumes fell 3 percent in the nine months, worse than the first-half's 2 percent drop, BAT said. Volumes of Kent, Lucky Strike, Dunhill and Pall Mall, the so- called major global brands, rose 4 percent in the period, further decelerating after two quarters of slowing growth. Raising Prices To counter declining smoking rates in North America and countries such as Germany and the U.K., tobacco companies have been looking for takeovers to boost sales, as well as raising prices. BAT spent about $5 billion in total for Turkey's Tekel in June 2008 and Denmark's Skandinavisk Tobakskompagni in July. Last week, Philip Morris International, which sells Marlboro in countries outside the U.S., and Reynolds American Inc., owner of the Camel brand, reported third-quarter profit that beat analysts' estimates as higher prices offset shipment declines. "Pricing remains the key to industry progress in the current year and into 2010 in our view, while all competitors appear to understand the need to retain pricing discipline," Cazenove analysts said in a note today. They have an "outperform" recommendation on BAT shares. Enditem