http://www.businessweek.com/ap/2013-07-23/sector-snap-tobacco-stocks-hit-by-menthol-opinion

AP News

Sector Snap: Tobacco stocks hit by menthol opinion


NEW YORK (AP) — Shares of tobacco companies fell Tuesday after a Food and Drug Administration review concluded that menthol cigarettes likely pose a greater public health risk than regular cigarettes.

Shares of Lorillard, the top maker of menthol cigarettes with its Newport brand, took the biggest hit among the U.S. cigarette makers following the news.

But the review does not make a recommendation on whether to limit or ban the minty smokes — one of the few areas of growth in the shrinking cigarette industry. The FDA said it's seeking input from the health community, the tobacco industry and others on possible restrictions.

According to the review, there is little evidence to suggest that menthol cigarettes are more or less toxic or contribute to more disease risk to smokers than regular cigarettes. But the data does show that menthol use is likely associated with more younger people taking up smoking and that menthol smokers have a harder time quitting.

There's also evidence indicating that menthol's cooling properties can reduce the harshness of cigarette smoke and that menthol cigarettes are marketed as a smoother alternative, the review said.

Meanwhile, the percentage of U.S. cigarette smokers using menthol brands grew from 33.9 percent in 2008 to 37.5 percent in 2011, according to a study by the federal Substance Abuse and Mental Health Services Administration, with more significant growth among younger smokers.

Citi analyst Vivien Azer said she thinks it's still unlikely that there will be a complete ban of menthol cigarettes any time soon.

Azer estimated that menthols make up about 30 percent of U.S. cigarette sales volumes and about 90 percent of Lorillard Inc.'s company sales volumes. The Greensboro, N.C.-based company's Newport brand is the top-selling menthol cigarette in the U.S., with nearly 38 percent of the market.

Lorillard on Tuesday reiterated its long-held belief that menthol cigarettes shouldn't be treated differently than others. Not surprisingly, the company's shares posted some of the sector's biggest drops on Tuesday, falling $2.02, or 4 percent, to $44.13 in midday trading.

Meanwhile, shares of Marlboro maker Altria Group Inc. lost 97 cents, or 3 percent, to $35.91. Azer estimated that sales of that company's Marlboro Menthol account for about 20 percent of its sales.

Also on Tuesday, Altria reported second-quarter results that fell slightly short of Wall Street predictions.

Reynolds American Inc. fell $1.36, or 3 percent, to $50.46. That company sells menthol cigarettes under its Camel, Kool and Salem brands, which account for about 30 percent of its overall sales, Azer said.

Elsewhere in the sector, shares of Vector Group Inc. lost 17 cents to $16.42; and U.S. shares of British American Tobacco PLC lost 78 cents to $106.28.


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