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Last Updated: Jan 31st, 2007 - 10:58:43 |
BAT Third-Quarter Profit Rises 0.9%, Below Estimates
Oct 26, 2006, 16:42
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Oct. 26 (Bloomberg) - British American Tobacco Plc, the world's second-biggest publicly traded cigarette maker, said third-quarter profit rose 0.9 percent, below analyst estimates, as Japanese and German smokers bought fewer packs of Lucky Strikes. Net income advanced to 446 million pounds ($839 million), or 21.56 pence a share, from 442 million pounds, or 20.98 pence, a year earlier, the London-based company said today in a statement. The median estimate of six analysts surveyed by Bloomberg was 521 million pounds. Tobacco consumption in western Europe has fallen because of higher taxes, prohibitions on advertising and smoking bans, leading companies to seek new markets such as Russia, where demand is rising. BAT sold 1.8 percent fewer cigarettes in Europe in the third quarter. "It's a difficult time for the tobacco companies in the traditional markets," said Brian Tora, who manages about $33 billion at Gerrard Ltd. in London. Operating profit fell 4.5 percent to 619 million pounds as costs from plant closings and job cuts rose 16 percent to 116 million pounds. Sales excluding tax fell 1.7 percent to 2.44 billion pounds. Analysts had expected both operating profit and revenue to increase. South Africa Shares of BAT fell 15 pence, or 1 percent, to 1,467 pence at 8:18 a.m. in London. They have gained 23 percent in the past year, more than the 20 percent climb by the five-member Bloomberg Europe Tobacco Index. Altria Group Inc., the biggest traded tobacco maker, has gained 9.9 percent. Sales in Japan and South Africa slowed in the third quarter following increases in taxes and cigarette prices, company spokesman Michael Prideaux said. BAT expects total volumes to accelerate in the fourth quarter, he added. They should probably rise about 1.5 percent this year, having gained 1 percent in the first nine months, Prideaux said. "We expect a slowdown during the second half of the year," Michael Smith, an analyst at JPMorgan Chase & Co., said before today's report. He rates the stock "overweight" and expects full-year earnings per share will rise 12 percent, slowing from a 20 percent gain in the first half. Exchange Rates Declines by the dollar and the South African rand in the third quarter contributed to a negative currency effect of 21 million pounds, Prideaux said. Currency movements boosted first-half profit by 70 million pounds, and BAT expects that to reverse in the second half, for a "broadly neutral" full-year effect, Prideaux said. The dollar on average was 4 percent lower against the pound in the third quarter compared with a year earlier. That reduces profit from Reynolds American Inc., the U.S. maker of Camel cigarettes, in which BAT has a 42 percent stake. Separately, BAT said it agreed to sell brands including Muratti Ambassador to New York-based Altria's Philip Morris International unit. It's also buying the Benson & Hedges brand in some African countries from the U.S. company, which will pay BAT $115 million, according to the accord's terms. In February, BAT raised its target for cost savings from reorganizing its headquarters and improving efficiency at its plants to 400 million pounds a year by 2007. The company has shut at least eight plants since 2004, cutting more than 4,500 jobs. It expects additional cost savings from factory closings. 180 Markets Altria yesterday said third-quarter profit fell 0.3 percent to $2.88 billion on declining European and Japanese shipments. Reynolds American said yesterday third-quarter profit rose 45 percent to $309 million after Camel gained smokers and it closed a factory. BAT gets no more than 10 percent of profit from any one of the 180 countries it operates in, according to Merrill Lynch & Co. calculations. The cigarette maker has for more than a year beaten its goal of increasing earnings per share by almost 10 percent on average. Adams said in July that the outperformance won't continue. BAT expanded in central and eastern Europe in the 1990s, entering Russia, Ukraine and Uzbekistan through joint ventures and acquisitions. BAT has also boosted investment in Turkey, Egypt, Vietnam, South Korea and Nigeria since 2001. Tobacco companies have responded to increasing taxes and regulation in western Europe by raising prices. The price of Altria's Marlboro cigarettes in Germany, Europe's largest tobacco market, has risen 41 percent to 4.47 euros a pack since January 2002. BAT bought back 28 million shares in the first nine months of the year for 399 million pounds.
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