BAT Joins U.S. Competitors in Beating Analyst Profit Estimates
British American Tobacco Plc, the maker of Lucky Strike cigarettes, joined Philip Morris International Inc. and Reynolds American Inc. in reporting profit that beat analysts’ estimates on price increases.
First-half net income climbed 16 percent to 1.45 billion pounds ($2.38 billion), or 72.75 pence a share, the London-based company said today. That exceeded the 1.37 billion-pound average estimate of five analysts compiled by Bloomberg.
Philip Morris, the world’s biggest publicly traded tobacco company, and Reynolds American Inc., the second-largest U.S. cigarette maker, last week reported profit that topped estimates and raised their 2009 earnings forecasts. BAT and Philip Morris have spent more than $8 billion combined since June 2008 to acquire cigarette makers, gaining more power to increase prices. BAT raised prices in Mexico, Russia, and Italy this year.
“The underlying performance was a lot stronger than I’d expected, mainly on the more positive price mix effect,” Thane Duff, an analyst at Investec Securities, said by phone from Sandton, South Africa. He has a “buy” recommendation on BAT.
BAT climbed 7 pence, or 0.4 percent, to 1,847 pence at 9:24 a.m. in London trading. The stock has risen 2.7 percent in 2009.
The strength of currencies such as the Canadian dollar and South African rand helped boost profit by about 10 percent in the first half, spokesman Michael Prideaux said. The Canadian dollar was on average 10 percent higher against sterling compared with the year-earlier period, while the rand rose 11 percent. Those countries are among BAT’s top five markets.
Higher Dividend
Benefits from currency swings will reduce in the second- half to about 6 percent of operating profit, Prideaux said.
“The second half is going to be a bit tougher as we lap acquisitions made last year and the currency tailwind isn’t as strong,” he said. “Pricing momentum will continue to be good,” for the remainder of the year.
BAT said it plans to raise the interim dividend by 26 percent to 27.9 pence a share.
Sales increased 24 percent to 6.78 billion pounds, BAT said. Volumes increased 5 percent to 349 billion cigarettes, and fell 2 percent when acquisitions are excluded.
The company said its market share in Russia fell to 20 percent from 22 percent, while it also had a smaller share of the market in Ukraine, Japan and Mexico. The ‘global drive brands’ of Kent, Dunhill, Lucky Strike and Pall Mall helped compensate for those declines by achieving 5 percent volume growth.
Acquisitions
BAT spent about $5 billion in total for Tekel in June 2008 and Skandinavisk Tobakskompagni in July 2009, 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, the World Health Organization says.
BAT said on June 17 it will buy control of PT Bentoel Internasional Investama for $494 million, entering the market for clove-flavored cigarettes in Indonesia.
“We’re pleased with what we’ve seen so far and particularly with the quality of management,” Prideaux said. “Hopefully it gives us a platform for growth.”
“A single-country type acquisition,” is likely, he added.
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.
Net income climbed from 1.25 billion pounds, or 62.08 pence, a year earlier.
