BAT shares fall after it fails to lift guidance on US vape boost
BAT's Revenue Forecast and Market Impact
June 2 (Reuters) - British American Tobacco raised its forecast for revenue from smoking alternatives like vapes on Tuesday after a significant U.S. policy shift, but kept its group-wide guidance unchanged, sending its shares lower.
The Lucky Strike and Dunhill cigarette maker's shares fell 4% after it said it continued to see full-year revenue and adjusted profit from operations hitting the lower end of its guidance of 3-5% and 4-6%, respectively.
US Regulatory Environment and Sales Constraints
Sales in the United States, BAT's largest market, have been constrained by a requirement that manufacturers of new nicotine products like the company's Vuse vapes or Velo nicotine pouches obtain a licence from regulators, a lengthy process that has delayed product launches.
Tobacco companies have also argued the policy has fuelled widespread illegal sales of unlicensed vapes.
FDA Policy Shift
However, the FDA last month said it would use 'enforcement discretion' to look the other way when manufacturers sold unlicensed products, as long as their licence applications met certain standards.
"The size of the prize is very high," CEO Tadeu Marroco told analysts on a call, adding that BAT estimates unlicensed vape sales are worth 7 billion pounds ($9.43 billion) in the U.S..
Product Innovation and Market Strategy
New Products
The company is preparing to launch new products to better compete in the U.S., including flavoured versions of Vuse in the third quarter and an updated Velo pouch in August or September, Marroco said.
Revenue Growth Expectations
BAT expects first-half and full-year revenue growth from such products to be in the mid-teens, up from its prior forecast of low double-digit growth.
Market Share and Industry Outlook
The company lost cigarette market share in its seven top tobacco markets, including the U.S., where there has been a shift to lower-priced products.
It expects the tobacco industry to suffer a 2.5% decline in global volumes this year, more than previously expected.
Analyst and Management Perspectives
Barclays analyst Pallav Mittal said some investors had been expecting a guidance upgrade, at least for revenue, adding that BAT was being cautious due to the unclear knock-on effects of the Iran war.
Marroco said there had been no significant impact on BAT's business to date, but he worried the conflict and its impact on the price of essentials like fuel could deal a blow to consumer spending on the company's products.
($1 = 0.7427 pounds)
(Reporting by Raechel Thankam Job in Bengaluru and Emma Rumney in London; Editing by Rashmi Aich, Kirsten Donovan)
