February 27, 2020 / 8:07 AM / in a month

BAT beats profit expectations, sees U.S. ban on flavoured e-cigarettes as temporary

(Reuters) - British American Tobacco (BATS.L) reported better-than-expected annual profits on Thursday helped by higher pricing of its cigarettes, and said it was confident of resuming sales of flavoured e-cigarette pods in the United States despite a ban.

FILE PHOTO: Cigarettes are seen during the manufacturing process in the British American Tobacco Cigarette Factory (BAT) in Bayreuth, southern Germany, April 30, 2014. REUTERS/Michaela Rehle

Shares of the world’s No. 2 tobacco company have risen nearly 14% in the past 12 months, partly due to the group’s low exposure to vaping in the United States where a backlash against e-cigarettes following several vaping-related deaths led to tighter regulation and a ban on selling pod-based e-cigarette flavours from this month.

“It’s not a ban forever,” Chief Marketing Officer Kingsley Wheaton told Reuters, adding that BAT was confident its flavoured products will be approved by the U.S. Food and Drug Administration (FDA) and go back on the market.

Despite the ban, the FDA will consider applications to sell these products and has given e-cigarette makers until May 22 to submit them.

BAT said it was going to file applications for a range of flavours.

Shares in the maker of Lucky Strike and Dunhill cigarettes were up 2.5% after its results at 3,299 pence by 1027 GMT.

Since taking charge last April, Chief Executive Jack Bowles has acknowledged that BAT was slow to react to the vaping craze in the United States, and has since promised to slim down BAT to concentrate on “new category” businesses.

The company did not give any guidance on Thursday for its new categories products for 2020, which Jefferies analysts said was a prudent approach to let the year unfold.

BAT expects adjusted revenue growth for 2020 to be in the 3%-5% range, at constant exchange rates, with “results”, mainly in its new category business, to be weighted to the second half.

It said group revenue rose 5.7% to 25.88 billion pounds ($34 billion) for the year ended Dec. 31, compared to analyst estimates of 25.62 billion pounds, according to Refinitiv data.

Revenue from its sales of traditional cigarettes grew 4.2% as it managed to raise prices in the United States. BAT said the volume of sales in the global industry for cigarette and tobacco heating products’ would fall around 4% in 2020, with volumes in the United States set to decline by around 5%.

“These are predictably solid results... Tobacco faces many challenges currently, but BAT is navigating around them,” said Steve Clayton, manager of Hargreaves Lansdown’s HL Select funds.

BAT reported adjusted earnings per share of 321.6 pence for 2019, beating analysts’ estimate of 319.42 pence. It expects constant currency adjusted EPS growth for 2020 to be in high single digits.

Reporting by Siddharth Cavale and Tanishaa Nadkar in Bengaluru; Editing by Vinay Dwivedi and Susan Fenton

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