Why British American Tobacco ADRs Hit an All-Time Low

Key Takeaways

  • British American Tobacco said it is losing cigarette customers and will accelerate a switch to selling different tobacco products.
  • The maker of Camel, Lucky Strike, and other brands will take a $31.5 billion charge related to a slump in U.S. demand and the strategy shift.
  • American depositary receipts of BAT dropped to an all-time low following the news.

American depositary receipts (ADRs) of British American Tobacco (BTI) tumbled over 8% in early trading Wednesday to an all-time low as the cigarette maker indicated it was losing American customers who were switching to lower-priced smokes, and plans to shift its focus to smokeless products.

The maker of Camel, Lucky Strike, and other brands explained that in the U.S. “macro-economic pressures and the continued proliferation of illicit modern disposables have continued to impact combustibles industry volume in the second half of the year.” It added it’s also seeing pressure on the premium segment market after a more stable first half.

BAT indicated that it plans to accelerate the company’s transformation away from selling traditional cigarettes and encouraging customers to switch to other tobacco products. The company calls the plan, “Building a Smokeless World.”

It said that because of the macroeconomic headwinds in the U.S. and the change in strategy, it would be taking a non-cash adjusting impairment charge of about 25 billion pounds ($31.5 billion). BAT noted that the charge mostly relates to the U.S. brands it has acquired, and it will “now assess their carrying value and useful economic lives over an estimated period of 30 years.” The company said it would begin amortization of the remaining value of its U.S. combustible brands in January.

BAT noted that because of all these changes, it expects revenue and profit growth in low-single-digit percentages in 2024, with progressive improvement to a 3% to 5% rise in revenue and mid-single-digit profit gain by 2026.

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