New Regs Could Change U.S. Tobacco Industry Landscape in 2014

Stronger regulation of currently unregulated products could impede growth prospects: Fitch

Published in CSP Daily News

Fitch Ratings

New Regs Could Change U.S. Tobacco Industry Landscape in 2014

Stronger regulations of currently unregulated product could impede growth prospects: Fitch

CHICAGO -- The credit outlook for the U.S. tobacco industry is stable although previously benign regulatory risks could arise in 2014, according to a recent Fitch Ratings report, "2014 Outlook: Tobacco Products."

Fitch sees longstanding uncertainty regarding potential U.S. regulation of menthol cigarettes may be clarified in 2014 following the recent expiration of a U.S. Food & Drug Administration (FDA) comment period. Furthermore, new rules are nearing for the sale and marketing of E-cigarettes, a product category that has seen significant growth in the United States.

Stronger regulations of the currently unregulated product could impede growth prospects, it said.

Secular cigarette volume declines in the range of 3% to 5% have been somewhat offset by breadth of the product offerings, historically most evident at Altria and Reynolds American. Lorillard, the least diversified large tobacco company, was the first to enter the electronic cigarette market with the purchase of blu E-Cigs in 2012. Fitch said that it believes that industry sales will benefit from positive price realization in the tobacco cigarette market during the coming year despite the highly competitive environment.

Fitch also noted that tobacco manufacturers have successfully managed litigation risks.

The tobacco industry has flexibility to return significant cash flows to shareholders via large dividend payments and aggressive share repurchasing. Fitch said that it expects the industry to maintain its shareholder-friendly posture throughout 2014 with dividend payouts in the rage of 70% to 80%, supplemented by share repurchasing.

Click here to view the full Fitch report.