Moody's: US and European tobacco industry poised for rise in operating profits in 2016

Kasmira Jefford
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The global tobacco industry sells around 5.7 trillion cigarettes a year (Source: Getty)
he US and European tobacco industry will see a rise in operating profits in 2016 despite a drop in cigarette sales, according to the latest forecasts by Moody’s Investors Service.

The ratings’ agency predicts a four to five per cent rise in operating profits next year in both the US and Europe, even as cigarette sales volumes fall by about four per cent.

“Moreover, the expected fall in sales volume could accelerate in the US if e-cigarette sales see stronger-than-expected growth,” Moody’s senior analyst, Nancy Meadows, said.

The global tobacco industry sells about 5.7 trillion cigarettes a year, but is seeing that number shrink due to increased health consciousness, weak consumer spending and higher taxes, as well as competition from cheap black-market packs and e-cigarettes.

Moody’s warned that European tobacco companies will face further regulatory pressures next year as the new EU rules banning the sale of packets of ten cigarettes and the introduction of mandatory picture and text health warnings covering most of cigarette packs comes into effect.

“For the European industry, strong pricing in Western Europe will continue in 2016, although sales volumes will stay under pressure due to price increases,” Meadows added.

Meanwhile Moody’s outlook for the wider global consumer goods sector forecast improved operating profits in 2016, “albeit with varying credit strengths and challenges”.

The agency said its “stable” outlook on global consumer products reflects its view that foreign exchange volatility will be somewhat offset by low oil prices and moderate commodity costs, and that cost reductions will give companies more firepower to reinvest.

However, the Moody’s cautioned that the sector also faced challenges including increasing dividends and shareholder returns and the slowdown in developing markets.

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