Stubbed out
Cigarette giant British American Tobacco (BAT) has wiped a whopping $31.5 billion from the value of some of its US brands like Newport, Camel, and Pall Mall, in one of the biggest corporate write-offs in history.
CEO Tadeu Marroco stoically dismissed the writedown as “accounting catching up with reality”, with American smoking rates continuing to plummet, hovering near record lows of 12%, down from 26% just 20 years ago. The move caused shockwaves throughout the industry, sending BAT shares, as well as those of rivals Altria and Philip Morris, down 9%, 3%, and 1%, respectively.
Still unmatched
Big tobacco has been smoldering since the Surgeon General's 1964 report linking smoking to cancer. But, nearly 6 decades on, tobacco is still... big (and profitable). Indeed, relative to what consumers pay, cigarettes remain incredibly cheap to manufacture, with BAT itself reporting a 38% operating profit margin last year. That’s better than what Coca-Cola, Nike, Apple, and even luxury giant LVMH managed.
That margin gives the company a lot of financial firepower in its transition for the future, with BAT aiming to generate up to 50% of its revenue from smoke-free non-combustibles, such as vapes, by 2035. That's the obvious strategy, given that you're much more likely to find students stealthily vaping than lighting up a cigarette these days — CDC data reveals that just 2% of high schoolers admit to smoking cigarettes, a record low.
