Tobacco: smoke signals
Nicotine regulation may never happen, while ecigarette news is positive
The Trump administration is making little legislative headway. But it can at least slash regulations with gusto. Surprising, then, that a government that has rolled back rules on power plant emissions should propose new ones on personal lung pollution.
Shares in Altria have fallen 9 per cent and British American Tobacco by 7 per cent since the Food and Drug Administration said it aimed to reduce nicotine in cigarettes to lessen their addictive properties, while supporting new safer alternatives.
The sell-off was not universal, however. Philip Morris International shares, after a brief dip in sympathy with the sector, ended up in positive territory on Friday. PMI, which sells Marlboro internationally after its spin-off from Altria in 2008, has an advantage; the Switzerland-based company can dodge the rules thanks to its focus outside the US. BAT, however, paid $49bn in January for the remaining stake in Reynolds American, maker of Newports and Camel.
Yet the US is not such a hostile place for Big Tobacco. Altria’s sell-off, which went as far as 19 per cent at one stage on Friday, looks exaggerated. Even as the number of smokers in the US has continued to fall, industry revenues have risen thanks to higher prices. Last year volume sales fell 2 per cent to 263.4bn cigarettes, while the value rose 1 per cent to $94.4bn, according to Euromonitor International. BAT’s bet is still good.
Of course the industry remains vulnerable to government intervention. But there is a long way to go before any new restrictions are implemented. The permissive attitude to ecigarettes, the other side of the proposal, is more likely to stick. All should benefit — but none more so than PMI, which possesses one of the most promising ecigarettes. Even before Friday, Wells Fargo estimated it would be enough to reverse declining revenues and more than double earnings growth. Rather than bask in its remoteness from the US, it can seize the moment.