Why Tobacco Stocks Are Trading Down Wednesday

Tobacco and cigarette makers were trading mostly lower Wednesday morning after British American Tobacco PLC BTI — the world's second-largest tobacco company — issued a sales warning.

What Happened

British American Tobacco said in a news release Wednesday that it expects global industry volume to be down by around 3.5 percent in 2019. The U.S. market is expected to see a volume decline of 4-5 percent due to a recent price increase and rising gas prices; the company said the U.S. industry volume decline is consistent with historic ranges.

Credit Suisse analysts were quoted by Reuters as saying continued declines in the cigarette category are "not a surprise."

Why It's Important

Despite a guide for lower volume shipments, British American said it remains on track for constant currency revenue growth in the mid-to-upper half of its long-term guidance of 3-5 percent.

British American said its corporate value share has risen by 10 basis points year-to-date versus fiscal 2018 due to strong performance by its Strategic Combustible Brands — a group that includes brands such as Dunhill, Newport and Natural American Spirit and which has gained 50 basis points year-to-date.

What's Next

British American Tobacco said its "new categories" products like THP, vapor and modern oral are on pace to generate 30-50-percent constant currency revenue growth in the back half of the year. The company's deleveraging initiatives remain on track, with a goal of lowering adjusted net debt/adjusted EBITDA by around 0.4 times per year.