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BAT says US consumers are switching to cheaper cigarettes

British American Tobacco Plc said US consumers are increasingly switching to lower-priced cigarette brands as higher living costs reduce disposable income.

The maker of Lucky Strike cigarettes and Vuse vaping devices has begun new sales strategies in the US market in the second half to offset “early signs of accelerated downtrading,” Chief Executive Officer Jack Bowles said in a statement.

With inflation at the highest in decades in the US and parts of Europe, consumer-product companies are vulnerable to customers switching from premium products to lower-margin budget options to save cash.

As BAT’s brand profile in the US tilts toward the more expensive end, BAT will offer discounts on cigarettes in some US markets, Chief Finance Officer Tadeu Marroco said on a call with analysts.

The shares fell as much as 3.2% in London as investors had been expecting BAT to say whether it will buy back shares next year. The board will consider capital allocation next year while weighing macroeconomic conditions, debt-to-earnings targets and higher interest rates, Marroco said on the call.

BAT reiterated its guidance for mid-single percentage growth in adjusted earnings per share at constant currency this year. Price increases and marketing campaigns should offset higher raw material prices, according to the tobacco company.

The company forecast global tobacco industry volumes to decline about 2% after sales improved in emerging markets. BAT previously forecast a 3% drop.

© 2022 Bloomberg

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