It seems big tobacco giants can breathe easy as price hikes are offsetting falling cigarette sales, according to a leading ratings agency.
In a recent note to clients, Moody’s observed that operating profits in sector are expected to grow by 3%-4% into 2020 on price rises and operating cost reductions. While the agency expects e-cigarette sales growth to double into 2021, it added that the business will remain only a small part of overall market.
The observation has prompted Moody’s to opine that the outlook for the global tobacco sector for the coming 12 to 18 months remains ‘stable’.
The key driver of the stable outlook is the anticipated growth in operating profits of 3.3% in 2019 and 3.8% in 2020.
"Sales of alternative products, like e-cigarettes, will continue to grow rapidly, doubling in the next two years," said Roberto Pozzi, a Moody's Senior Vice President. "But their share of the tobacco market will remain a modest 3%-4% partly due to competition and low adoption."
Regulation continues to be a risk, although a manageable one, Moody's added.
The US Food and Drug Administration (FDA) plans more regulation, but so far has not enacted any which could exacerbate the pressure on the industry. Several litigation cases remain ongoing but are unlikely to be settled in the next 12-18 months, Moody’s concluded.
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