BAT shares drop as it maintains full-year forecast despite US policy boost
BAT's Financial Outlook and Market Reactions
Revenue Forecast and Share Performance
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 in early trading.
The Lucky Strike and Dunhill cigarette maker's shares fell more than 2% 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.
Impact of US Regulatory Changes
Licensing Requirements and Delays
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.
FDA Enforcement Discretion
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.
BAT's Response to Policy Shift
"We welcome the FDA's recent prioritisation guidance as an important step toward effective enforcement and expanding market access for responsible products, and we are actively preparing our future Modern Oral and Vapour portfolio for market," CEO Tadeu Marroco said in a statement.
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.
Challenges in Traditional Tobacco Markets
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 Company Commentary
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.
BAT said while there was currently no significant impact on its business, there was the risk of volatility in consumer sentiment should uncertainty persist.
(Reporting by Raechel Thankam Job in Bengaluru and Emma Rumney in London; Editing by Rashmi Aich, Kirsten Donovan)
