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Reynolds American building in Winston-Salem.

British American Tobacco Plc provided Wednesday a steady-as-it-goes update to its full-year 2018 financial guidance.

The company, which acquired full ownership of Reynolds American Inc. in July 2017, said “the business continues to perform well and full-year guidance remains unchanged.”

Although BAT did not disclose specific guidance targets, it projected exceeding high single-figure growth in adjusted earnings when using constant currency standards.

BAT releases just mid-year and full-year financial reports, rather than quarterly reports.

“We remain on track for a strong performance in 2018 — driven by both our combustible and (reduced-risk) businesses,” Nicandro Durante, BAT’s chief executive, said in a statement. “We remain committed to a dividend pay-out ratio of at least 65 percent.”

Durante plans to retire April 1 after eight years as chief executive and nearly 37 years with BAT. He will be succeeded by Jack Bowles, who has served as chief operating officer of the company’s international business since 2017.

Durante said Reynolds is “performing well, with positive pricing and continued value share growth.”

As of Dec. 31, 2016 — the last workforce count available — Reynolds had about 5,500 employees overall and between 2,500 and 3,000 in Forsyth County, primarily at its 2-million-square-foot Tobaccoville manufacturing plant.

For the first half of fiscal 2018, net income for BAT rose 72.4 percent to $5.83 billion. Revenue jumped 56.9 percent year over year to $15.29 billion, with the U.S. representing $5.95 billion of that amount, or 38.9 percent.

Before BAT had total ownership of Reynolds, BAT declared U.S. revenue based on its then-42.2 percent stake in Reynolds.

New portfolio

Although U.S. traditional cigarette volume decline is projected to be in the 4 percent to 4.5 percent range, BAT said No. 2 Newport, No. 3 Camel and top-10 Natural American Spirit “are all growing market share.”

Even though electronic cigarette Vuse, produced by R.J. Reynolds Vapor Co., has lost market share to top-selling Juul, BAT said its volume is up 30 percent year to date and its Vuse Alto style is in 55,000 stores nationwide.

Durante said BAT has chosen to establish “a new portfolio of priority brands” that will be known as its strategic portfolio.

It has added Reynolds’ Camel, Newport and Natural American Spirit brands of traditional cigarettes to the portfolio, along with Reynolds’ Grizzly moist snuff and Vuse e-cigarettes. The legacy BAT brands of traditional cigarettes are Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. They’re joined by BAT’s Vype e-cigarette and its heat-not-burn cigarette named glo.

BAT said Wednesday that the strategic brands overall were up 180 basis points in market share over the past 12 months.

Managing regulations

BAT said it remains confident that it is “well placed to manage U.S. regulatory proposals.”

The $54.5 billion risk that BAT took in acquiring full ownership of Reynolds always carried one potential drawback — that the FDA would go after traditional menthol cigarettes.

On Nov. 15, the Food and Drug Administration’s commissioner said the agency plans to significantly restrict, if not ban, the sale of traditional menthol cigarettes.

“We are constructively engaging regulators and supporting evidence-based regulation,” BAT said. “We have experience in managing regulatory change over many years.”

The recommendation from FDA Commissioner Dr. Scott Gottlieb has sent BAT’s share price down 11 percent in the past four weeks. The share price also is down nearly 52 percent over its 52-week high of $71.45 on Jan. 23. When BAT completed the Reynolds deal, its share price was $71.25.

Gottlieb said when he unveiled a regulatory “road map” in July 2017 that the agency believes menthol in traditional cigarettes, as well as candy and fruit flavorings in cigars and electronic cigarettes, is used to entice underage youth to use tobacco products.

Newport holds a 14 percent share of the U.S. cigarette market, including a 55 percent menthol market share. Bloomberg News reported menthol sales represent about 25 percent of BAT’s revenue.

“Regulation of menthol in cigarettes should be developed through a comprehensive rule-making process, be based on a thorough review of the science and consider the unintended consequences, in order to withstand judicial review,” BAT said Wednesday, echoing previous statements on the FDA recommendations.

Next-generation products

BAT re-affirmed it would not meet its fiscal 2018 revenue goal for next-generation products, decreasing its prediction from $1.32 billion to $1.14 billion. Those products primarily are e-cigs and heat-not-burn traditional cigarettes.

“The revision ... is largely driven by a reduction in planned year-end stocks in Japan as the (heat-not-burn) category remains flat and the effect of the Vuse Vibe recall in the U.S.,” the manufacturer said.

BAT reported its glo heat-not-burn brand has a 4.6 percent market share in Japan, compared with 3.3 percent in January. Japan has been the leading global market for smoker conversion from combustible cigarettes to heat-not-burn options.

BAT and Reynolds combined have spent more than $2.5 billion on development of next generation products since 2012. BAT has launched sales of vaping and heat-not-burn products in 16 countries, most recently Italy in April.

rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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