BAT earnings growth shows tobacco’s resilience

British American Tobacco Plc’s earnings demonstrated the ability of the cigarette industry to keep raising prices to compensate for lower consumption amid the Covid pandemic.demonstrated the cigarette industry’s ability to keep raising prices to fuel earnings growth, giving it resilience amid the Covid pandemic.

  • Adjusted operating profit rose 3.3% at constant rates to 5.37 billion pounds ($7.1 billion). Analysts expected 5.33 billion pounds.

Key Insights

  • Tobacco again showed its ability to withstand a crisis, even though the outlook is a bit more muted than at the start of the year. The maker of Lucky Strike cigarettes last month cut its sales growth forecasts amid weaker sales in emerging markets due to lockdown measures.
  • In markets such as South Africa, Mexico and Argentina, BAT’s revenue has suffered as governments imposed restrictions on the sale of cigarettes or ordered factory closures. In the US, BAT now expects industry volume to drop only 2.5%, rather than 4%, as consumer demand is performing better.
  • The big question is how long BAT can lean on pricing so much to offset lower consumption. Higher prices and more expensive products added 8.5 percentage points to sales growth, while shipments dropped 6.3%.

Market Reaction

  • BAT’s shares have dropped 18% this year.

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