Imperial Tobacco third quarter sees cigarette volume weaken
Imperial Tobacco has delivered a slightly light set of nine-month results, with underlying volume and revenue growth at its growth brands slowing in the third quarter, though the integration of its huge US acquisition of brands from Reynolds American has begun well.
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After the first nine months of its financial year, the cigarette maker remained on track to hit its full year numbers, with underlying volumes of its growth brands up 15% at actual currency rates and 10% on an underlying basis, which was down from 12% growth in the first half of the year.
Total tobacco volumes in the nine-month period were 3% lower or down 6% underlying, which was also worse than the first six months of the year when they were down 1% actual and 5% underlying.
This disappointed analysts, with the consensus expectation for a 2% drop.
Underlying net revenues for Imperials growth brands, which including Gauloises, John Player Specials and Lambert & Butler, were raised 14%, though again this was down from the 15% in the first half.
Chief executive Alison Cooper said the quarter built on the progress in the first half: "Our continued focus on improving the consistency and quality of our performance has delivered excellent results from our Growth Brands which continue to grow net revenue, volume and market share."
She said that after completion of the £3.6bn US acquisition towards the end of the quarter, which adds key brands such as Winston, Salem and Kool cigarettes and Blu ecigarettes, she was pleased with "the successful start we've made in implementing our commercial and integration plans for ITG Brands".
"This consistent delivery against our strategic agenda leaves us on track to deliver against full year expectations and to create further sustainable value for our shareholders."
The company also confirmed that its forex headwind was only expected to be around 4% for the full year.
Cash discipline was highlighted, with cash conversion of circa 90% expected for the full year, with a continuing commitment to ongoing debt reduction and a reiteration that the group was on track to deliver annual dividend growth of 10%.
The final quarter will see the shape of the group undergo a major change, which on a pro forma basis, will make American revenues around 24% of group total and Imperial's market share in the USA becoming around 10%.
Analysts at Whitman Howard pointed out that the company's confirmation of the forex headwind was important as reported earnings are a major beneficiary of the company’s bias towards mature markets.
"Looking forward, the company’s fortunes will increasingly be US driven. A brief look at where both Altria and Reynolds America trade suggests how supportive this should be for valuation."