British American Tobacco beats expectations, shares up

By Martinne Geller

LONDON (Reuters) - British American Tobacco (BATS.L), the world's No. 2 cigarette company, reported better-than-expected performance for the second quarter, helped by cost savings and market share gains.

Shares in the company, which makes Dunhill and Lucky Strike cigarettes, were up 2.8 percent at 0718 GMT (0818 BST).

All big tobacco companies are grappling with falling sales in many markets due to increasing regulation, higher taxes, economic weakness and growing health consciousness.

While cigarettes remain a highly profitable business, most of the large players now also sell e-cigarettes, which heat nicotine-laced liquid into an inhalable vapour.

BAT said on Wednesday revenue fell 5.9 percent to 6.40 billion pounds in the six months to June 30.

Excluding the impact of currency moves, such as a weaker Russian rouble and Brazilian real and stronger British pound, revenue rose 2.4 percent. That compared with a rise of 1.7 percent in the first quarter.

Volume, which measures the amount of tobacco sold, fell 2.9 percent.

Looking just at the second quarter, RBC Capital Markets analysts said BAT's revenue rose 3 percent, double what analysts had expected.

"Overall, we consider this a solid set of results," they said.

Adjusted group profit from operations rose 1.3 percent to 2.70 billion pounds at constant rates of exchange in the first half. At current rates, profit from operations fell 6 percent.

The company said cost savings allowed it to mitigate the negative effect of currency fluctuations on transactions, maintaining its operating margin. Its overall market share grew by 40 basis points.

"The underlying performance of the business remains strong and we are confident that we are on course to deliver an improved second half," said Chairman Richard Burrows.

(Reporting by Martinne Geller; Editing by Mark Potter)