Imperial Tobacco Group Plc, Europe’s second-biggest tobacco company, reported a smaller drop in nine-month net revenue than analysts estimated as an improving European market helped offset a decline in Russia.
Sales fell 1 per cent, the England-based maker of Davidoff and Gauloises Blondes said in a statement today, compared with the median forecast of a 2 per cent drop from five analyst estimates in a Bloomberg News survey.
“The market as a whole has slightly improved in the past quarter,” Imperial said, leading it to repeat its outlook for the full year and its expectation of dividend growth of at least 10 per cent. There was a “significant deterioration” in Russia, which represents about 8 per cent of the company’s selling volume, though no more than 2 per cent of profit.
The shares rose 1.2 per cent to 2,555 pence at 8:02 a.m. in London. They’ve still dropped 6.6 per cent since 14 July, the day before the company said it would spend $7.1 billion on acquiring tobacco and the Blu e-cigarette brands jettisoned by the $25 billion Reynolds/Lorillard Inc. megamerger. Imperial chief executive officer Alison Cooper plans to ramp up its US business and propel Imperial from laggard to leader in e-cigarettes amid an increase in smoking regulations and as people increasingly turn their backs on traditional cigarettes.
“The results are pretty good, and for now we are not overly concerned about Russia,” said Philip Gorham, an analyst at Morningstar Inc. in Amsterdam. “The sales declines there are likely to reverse once the geopolitical situation calms down. We are very encouraged by the recovery in Europe, where Imperial is obviously much stronger.”
Earnings Drop
Imperial generates about 65 per cent of profit in the European Union, according to estimates from Fitch Ratings.
“Whilst conditions are still tough in a number of our markets, our footprint provides balance,” Cooper said in today’s statement. “Our proposed acquisition of US assets will make us a stronger competitor” in the country.
Imperial’s earnings declined 5 per cent in the first half as it made supply-chain changes and invested in brands.
The acquisition of the Winston, Cool, Salem, Maverick and Blu brands will deliver a return on invested capital of 10 per cent in the first full year following completion and will be “significantly” earnings enhancing, Imperial said in July.
With the completion of the transaction about 9 months away, the company has to battle a number of headwinds, one of them being the introduction of plain packaging in the UK.
The UK government’s final consultation on whether to ban branded cigarette packages concluded on 7 August, with plans to pass legislation to outlaw them as early as next year.
Bloomberg News, edited by ESM
