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The Situation in Tobacco Industry Is Heating Up

January 20, 2015

Reynolds American the second major cigarette manufacturer in the U.S. by profits has been recently under discussion in the acquisition rumors discussion during the last month. The most widespread gossip is that the company is intending to purchase Lorillard, the biggest US cigarette company.

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One more bit of rumors has British American Tobacco (BAT) raising its 42% investment in Reynolds. This should exclude an unpredictable takeover. BAT ought to obtain all the shares in Reynolds before it could boost its representation on the board of administrators. On the other hand Reynolds sees British American Tobacco as a companion and not an enemy.

BAT the second giant cigarette maker worldwide, revealed a progress in sales volume for the Q1. For the quarter, sales volume dropped by 1%. This is an advancement of about 2.7%. Falls in European markets just like Russia and Poland affected the profits in Asian countries as Indonesia and Pakistan. As people in the developed world try to quit smoking, makers like British American and its U.S. rivals are determined by price boosts for growth in profits. British American has explained that eliminating the effect of foreign currency rates, profit has increased by 2% in the quarter due to price and market share grows; yet, at the recent currency translation rates, profits declined by 12%.

BAT possesses a solid brand portfolio which includes such popular cigarette brands as Rothmans, Lucky Strike, and Pall Mall. Moreover it has one of the best worldwide presences of the key tobacco companies, and the increasing middle class in growing markets will significantly help the manufacturer to boost sales. When considering the growing markets, development is considerably affected given the growing health awareness of smokers. Even so, Pall Mall maker could make use of the presence in the major U.S. market. It is a powerful market with a huge customer base.

In spite of all these issues, smoking still remains to be a hard to kick habit, and cigarette users still purchase tobacco products in spite of the increasing prices. The solid cash flows of the industry suggest that companies provide huge dividend yields. British American Tobacco provides a formidable international presence, and it could end up gaining on the Reynolds and Lorillard merger.