British American Tobacco expects a small decline in half-year revenue and adjusted profit from operations, but maintained its forecast of low single digit annual growth.
The maker of Dunhill and Lucky Strike cigarettes has been forced to temper its hopes for revenue and profit growth as it grapples with a tough environment in the United States, one of its key markets.
There, both the company's traditional tobacco business and its portfolio of newer products such as vapes are struggling as users switch out its more expensive brands for illegal disposable vapes or cheaper cigarettes.
The company said while the U.S. was showing some early signs of recovery, traditional cigarette volumes were down around 9% so far this year across the industry.
'A Stronger Future'
Chief executive Tadeu Marroco said that investments which the company was making in its U.S. unit and elsewhere would set BAT up for a stronger future.
“We are sharpening our execution and making targeted investment choices to drive our medium-term sustainable growth algorithm," he said. "We are investing to sustainably strengthen our U.S. business, accelerate innovation momentum, and enhance capabilities that support our strategic delivery."
BAT had already warned its performance would be weighted to the second half of the year and that the U.S. market and investments would drag on its results in the near-term.
It said it expects half-year revenue and adjusted profit from operations to fall by low single digits, but it was on track to deliver on its guidance for the full year.
It aims to build back to revenue growth of 3% to 5% by 2026.
Analyst Viewpoint
Commenting on the tobacco firm's performance, AJ Bell's Russ Mould said, “Guidance for a decline in first-half revenue and profit shows that even companies with addictive products aren’t always guaranteed to do well. British American Tobacco continues to struggle in the US thanks to consumers buckling under the pressure of high interest rates which has impacted spending decisions, together with the rise of illegal vapes.
“With the US tobacco and vape industry undergoing a shift in normal buying patterns, it’s only natural for wholesalers to change their ordering habits, and that’s hurt British American Tobacco. At the same time, the company is investing in the US to strengthen its longer-term position, meaning it will have to lean more on other geographic regions to drive profits near-term.
“Additional headwinds present a longer-term problem for the group. Governments are increasingly anti-smoking and anti-vaping despite the tax income these products generate. More individuals are prioritising health and wellness, and this plays into a growing movement in society to stamp out bad habits like smoking and eating unhealthy things. Competition also remains fierce.
"Add these things together and it’s clear that British American Tobacco faces a tougher future.”
Additional reporting by ESM
