Japan Tobacco Lifts Profit Forecast Above Estimates

Source from:  Bloomberg  10/31/2014

Japan Tobacco Inc. (2914), which sells Camel and Winston cigarettes outside the U.S., raised its profit forecast by 9 percent for the nine months to December 2014 lifted by real estate sales and stronger overseas business.

Net income will probably be 375 billion yen ($3.4 billion) for the fiscal period, up from its previous forecast of 344 billion yen, the Tokyo-based company said in a statement today. That compares with the average estimate of 352.3 billion yen from 14 analysts compiled by Bloomberg.

Japan Tobacco, which derives more than half its revenue from selling tobacco outside Japan such as in France and Russia, benefited as the yen's weakness this year boosts the value of its overseas business. The former Japanese tobacco monopoly has acquired overseas brands as it sought to offset a shrinking population and declining number of smokers at home.

"Against the backdrop of significant industry contraction, our international tobacco business fundamentals remain strong," Chief Executive Officer Mitsuomi Koizumi said in a statement, adding Japan Tobacco's international business is "on track" for a double-digit profit increase.

Outside Japan

Revenue and adjusted operating profit for the international business rose 7.6 percent and 10.4 percent respectively in the six months to June, due to the yen's depreciation against the dollar, according to the company. The yen has declined 3.5 percent to the dollar year to date.

The cigarette-maker projected a dividend of 100 yen for the fiscal year of 2014, which covers nine months as it transitions to a new accounting period to match the calendar year. The current fiscal year will include nine months of results for the domestic business and 12 months for the international unit.

"The result brings a sense of reassurance and positive mood for Japan Tobacco's stock," said Mitsushige Akino, executive officer at Ichiyoshi Asset Management in Tokyo. "Expanding non-cigarette sales and the business outside Japan will be important points" for the company's future, he added.

Closing Plants

Net income fell 19 percent to 113.1 billion yen in the three months to September, according to Bloomberg calculations. This was in line with the average estimate of 113 billion yen from three analysts compiled by Bloomberg.

Japan Tobacco may close some manufacturing plants in Northern Ireland and Belgium after taxes and illegal trade triggered an industry slowdown in a number of countries in Europe. The company will shift them to other European sites in a move that would affect 1,100 full-time jobs in the region, the cigarette-maker announced earlier this month.

Japan Tobacco has also diversified into electronic cigarettes, acquiring in June the closely held Zandera Ltd., a U.K.-based maker of the so-called "e-cigarettes" which uses liquid nicotine and are typically smokeless.

Game Changer

"There's an increasing possibility e-cigarettes could change the rules of the game," Japan Tobacco's deputy president Hideki Miyazaki said at a briefing in Tokyo, held after the earnings release. The company is seeking acquisitions that would "expand our portfolio", he added.

The World Health Organization recommended in August that the indoor use of such e-cigarettes should be banned and sales to minors should be prohibited, and that manufacturers should provide convincing evidence that the products can help people quit smoking before making such claims.

Japan Tobacco's shares have gained 5.8 percent year to date, against the Topix's 1.8 percent decline. Enditem