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Lucky Strike maker BAT backs forecast but US growth a drag

FILE PHOTO: Illustration shows BAT (British American Tobacco)

By Eva Mathews

(Reuters) - British American Tobacco maintained its annual revenue and profit forecasts on Tuesday and said performance would be weighted towards the second half, as it grapples with weaker cigarette demand in the United States.

"Our performance in U.S. combustibles has been disappointing," newly appointed Chief Executive Tadeu Marroco said in a statement.

BAT said the number of consumers of non-combustible products grew by 900,000 globally in the first quarter, but growth in the U.S. cigarette market had waned as price-sensitive consumers switched to cheaper brands.

The Lucky Strike cigarette maker said global tobacco industry volume was now expected to fall around 3% in 2023, compared to an earlier forecast of a 2% decline.

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U.S. peers Altria and Philip Morris also missed quarterly sales expectations as demand for cigarettes fell.

"BATS had already hinted that it had seen signs of smokers downtrading in its key U.S. market and that's starting to be borne out in the numbers now," said Derren Nathan, analyst at Hargreaves Lansdown.

London-listed BAT was also dealt a blow by a voter-approved ban on flavoured tobacco products in California, America's most-populous state, although it said sales of its flavoured products in surrounding states had risen.

BAT has ramped up investments in e-cigarettes and so-called heat-not-burn devices as consumers switch to tobacco-free products.

Volume share of its glo tobacco heating product fell by 1.1 percentage points to 18.2% in key markets, according to its first-half pre-close trading update, while Vuse vapes share grew 2.8 percentage points, reaching 38.8%.

Government efforts to regulate these alternatives - the colourful designs and fruity flavours of which appeal to teenagers - along with the threat of illicit sales remain an overhang.

The Dunhill cigarette maker continues to expect a 3% to 5% rise in 2023 organic revenue at constant currency rates and mid-single digit growth in adjusted earnings per share.

(Reporting by Eva Mathews in Bengaluru; Editing by Subhranshu Sahu, Kirsten Donovan)