RPT-UPDATE 2-Smoker cutbacks hurt cigarette maker BAT

* Underlying cigs vols down 3 pct, overall 1 pct fall

* Recession still affecting smoking levels

* Says saw good growth in 9-month revenues

* Sees another year of good earnings growth

* Shares down 2 percent

(Repeats to reach more customers, edit headline)

By David Jones

LONDON, Oct 27 (BestGrowthStock) – British American Tobacco
(BATS.L: ), the world’s No 2 cigarette maker, posted a bigger than
expected 3 percent fall in underlying nine-month volumes and
said the recession’s impact on smokers showed no sign of

The maker of Kent, Dunhill, Lucky Strike and Pall Mall said
on Wednesday that although cigarette volumes dipped, revenue
showed good growth helped by price rises, the weak pound and the
purchase of PT Bentoel in Indonesia in June 2009, and it still
saw a year of good earnings growth for 2010.

The London-based group said the volume decline was due to
recent flooding in Pakistan, where an area the size of Italy
remains under water, increased illicit trade in Romania, Turkey
and South Africa and also tough trading in Germany.

The 3 percent dip in underlying volumes was below analyst
forecasts for a fall of 2 to 2-1/2 percent and was similar to
the 3 percent fall seen in first-half volumes.

“The challenging economic conditions, excise driven price
increases and high unemployment have led to some softening of
our volumes. The recession’s impact on consumers is still with
us and shows no signs of abating,” said Chief Executive Paul
Adams in a nine-month trading update.

BAT shares dipped 2 percent to 23.90 pounds by 0715 GMT in a
lower London market, but analysts said there would be no major
changes to earnings estimates with the consensus at 175.5p a
share for 2010.

Analysts said the 3 percent fall in third-quarter volumes
was in line with the world’s largest listed tobacco group Philip
Morris International Inc (PM.N: ) and better than Imperial
Tobacco’s 4 percent. The U.S. group earlier this month raised
prices and its earnings forecast for 2010 [nN21232118].

BAT spokesman Michael Prideaux said the group now expects
underlying volumes to be down around 3 percent for the year due
largely to Pakistan after earlier expecting its volume decline
in the second half would be better than a 2 percent fall.

“We as an industry tend to be last in and last out of a
recession,” he said, explaining that smoking levels are closely
linked to unemployment and there were no signs of unemployment
coming down around the world.

Analysts said tobacco groups tend to rely more on price
increases and cost savings to drive earnings rather than
volumes, and this was emphasised by the group’s move to start
procedures to close its Lecce factory in southern Italy.

The group’s overall volumes were down just 1 percent at 526
billion cigarettes, while its top four global brands saw volumes
rise 8 percent helped by trade stocking ahead of an excise duty
rise in Japan at the start of October.
(Reporting by David Jones; Editing by David Cowell)

RPT-UPDATE 2-Smoker cutbacks hurt cigarette maker BAT