British American Tobacco (BAT) issued their mid year financial update this morning. This is relevant to PM and MO as they are a major competitor for both companies.
The link to the BAT press release is HERE
Overall, BAT reduced their 2020 guidance by 2% on revenues, and lowered EPS guidance from a high single digits gain to a mid single digit gain.
For how this news relates to MO & PM, it's a mixed picture.
For MO, BAT reports the US cigarette market remains strong and resilient, while sales of e-cigs remain below previous years levels. Through the end of May, BAT states that overall cigarette sales dropped just 2% at retail, and they now estimate that overall 2020 cigarettes sales will drop by just 4%, versus 5% previously. However, it is likely that MO will continue to show some market share loss as they did in the first quarter, as BAT's premium brands (Newport & American Spirit) both showed share gains. But overall, probably reasonably good news for MO.
For PM, a more cloudy picture as international markets is where BAT saw weakness. Overall they expect global cigarette sales to be down 7% in 2020, with most of the volume loss coming from emerging market countries, as developed markets have remained strong.
In addition to the loss of duty-free sales, BAT saw losses in sales in emerging markets in Asia, as well as losses of sales in South America due to stay at home orders. Also, it appears that South Africa has banned all tobacco sales due to Covid-19. PM does not have major sales in some of these same markets such as South Africa, so their experience may be different. And developed markets are more important as that is where they earn the bulk of their profits. But overall, the 5-15 cents of negative impact from emerging market sales loss and down-trading they forecast for the second quarter remains pretty likely to be incurred.
On a positive note for PM, the negative impact from currency looks to be significantly lower with the recent major slide in the US dollar. During the Q1 earnings call, PM estimated 12 cents in negative currency in Q2, with a similar amount in the 3rd & 4th quarters as well. While it is likely Q2 will still have a sizable chunk of that foreign exchange loss as the quarter is nearly over already, if exchange rates stay where they are now, I would expect pretty low negative currency impacts in Q3 & Q4.