British American Tobacco, the world's second-biggest cigarette maker, posted an above forecast 26 percent jump in first-quarter earnings, but said although the year started well, the rise was no guide for the full year. BAT, which makes Lucky Strike, Kent, Dunhill and Pall Mall cigarettes, reported adjusted earnings per share of 20.1 pence for the first three months of 2005 on Wednesday, well ahead of forecasts of 16.5-18.4p, sending its shares up.
Earnings were boosted by higher profits from most areas around the globe, the impact of its Reynolds American deal, a reduced financing charge and lower tax in results complicated by IFRS accounting changes and the group's structural changes.
BAT shares were up 2.6 percent to 999p by 1110 GMT, after a new high of 1,003p, to be the FTSE 100 biggest gainer. They had outperformed the index by 10 percent over the last year, helped by positive reaction after last July's American Reynolds deal.
"Clearly we have got off to a good start, but it won't be a 26 percent earnings rise for the year, it will be less than this. Long-term our aim is for earnings growth in single figures," Chief Executive Paul Adams told a briefing.
Chairman Jan du Plessis added comparisons with 2004 will become more demanding due to one-off benefits in the second half of last year and the 26 percent growth in earnings per share is obviously not indicative of the outlook for the year.
The group, which also makes Rothmans, Peter Stuyvesant and State Express 555 cigarettes, aims to raise long-terms earnings at a high single-digit percentage annual rate and pay out at least half of these earnings as dividends to its shareholders.
The company's first-quarter profit from operations fell 4 percent to 582 million pounds ($1.1 billion), but showed a 6 percent rise when stripping out one-off effects with the bright spots being Russia, France, Germany, Brazil and Mexico.
Group cigarette volumes slipped 3 percent to 159 billion cigarettes, while the underlying picture showed a rise of 1 percent, after a largely flat performance last year.
"These were good figures and stripping out one-offs were still at the top of range of forecasts. Organic cigarette volume growth of 1 percent will please investors," said analyst Jonathan Fell at Morgan Stanley.
Michael Smith at J.P. Morgan said the results will help to close the gap and perhaps move BAT to a premium over its UK tobacco rivals. BAT shares trade at 11 times 2006 forecast earnings while Imperial Tobacco and Gallaher Group trade at around 12 times earnings.
Smith expects to raise his 2005 earnings estimate of 81.3p by 1-2 percent to forecast 2005 earnings growth of 8-9 percent.
BAT's main trouble spots were Canada and Japan. In the former, downtrading to cheaper cigarettes continues to hurt BAT business, but it says this trend is slowing.
In Japan, BAT is suffering in an intensively competitive market as the world's largest tobacco group Altria's Philip Morris is set to take back control of its Marlboro brand this month in that country from Japan Tobacco Inc.
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