Imperial Tobacco Profit Gain Matches Estimates on Prices

Imperial Tobacco Building

Imperial Tobacco Group Plc (IMT), Europe’s second-biggest tobacco company, reported growth in first-half earnings that matched analysts’ estimates after raising prices for cigarettes across its main U.K. market.

Adjusted operating profit rose 3 percent to 1.52 billion pounds ($2.5 billion) in the six months ended March 31, the Bristol, England-based company said today, equaling the median estimate of four analysts surveyed by Bloomberg.

Imperial Tobacco Building

Imperial Tobacco Group

Imperial Tobacco is market leader in the U.K., where profit rose 9 percent after price increases in October and March. Selling volume in Britain rose 6.5 percent as some smokers switched to cheaper brands such as JPS Silver, or to fine-cut tobacco. British consumers “continue to economize,” Chief Executive Officer Alison Cooper said in a statement.

“Underlying profits are going up in the U.K., and that’s the most important thing,” Chris Wickham, an analyst at Oriel Securities, said in a phone interview.

Imperial Tobacco rose 3.7 percent to 2,556 pence at 4:35 p.m. in London trading, the third-biggest gainer in the benchmark FTSE 100 Index. (UKX)

In the U.K., enduring its first double-dip recession since the 1970s, Imperial Tobacco sales rose 12 percent even as the overall market declined by 2 percent. The company controls about 45 percent of the British cigarette market and got 21 percent of tobacco profit from the country in the first half.

The group, which owns Gauloises and Davidoff brands, said its first quarter had been hit by the impact of sanctions in Syria, further declines in Spain and destocking following a price rise in the United States. Recent sales were also helped by strong sales of cigars in emerging markets such as China.

Declining Volume

The shift by consumers toward cheaper brands led to a contraction in the company’s U.K. operating profit margin to 65.5 percent of sales from 67.2 percent a year earlier. The margin should widen in the second half of the year, Cooper said today in a meeting with analysts.

“If I look at the U.K. market, even though you can see declines in the cigarette market, we’ve got growth in fine-cut, and that’s coming through very strongly,” Cooper said in an interview on Bloomberg Television’s “The Pulse.”

The total quantity of cigarettes sold by Imperial Tobacco fell 1 percent in the second quarter, improving on a 7 percent decline in the first three months of the year.

In Spain, which yesterday announced it had plunged into its second recession since 2009, Imperial boosted its leading share of the market with increased sales of Fortuna cigarettes, fine- cut tobacco, and Cuban cigars. Those were “positive signs” in a market that the company expects to contract about 9 percent in 2012, Cooper said in a teleconference with reporters.

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