StockMarketWire.com - The outlook for the European tobacco industry is now stable, from positive, as consumer spending is likely to remain pressured, leading to lower-than-previously-expected profit growth, says Moody's Investors Service.

The European tobacco industry's outlook had been positive since July 2012, when Moody's first published a separate outlook for Europe.

Report author Paolo Leschiutta - a senior credit officer in Moody's corporate finance group - said: "Our outlook on the European tobacco industry has changed to stable from positive as we expect the sector's operating profit growth to fall from 7% to between 4.5% and 5.5% over the next 12-18 months.

"Our revised expectations reflect the likelihood that people will rein in their spending, leading to lower cigarettes sales or a switch to cheaper products.".

In addition, Moody's notes that regulatory pressure has increased, pressuring consumption. Recent changes include a smoking ban in Russia, plain packaging in Australia and a display ban in the UK.

While these changes have had minimal impact individually, Moody's expects that, collectively, they will lead to an accelerated rate of the decline in tobacco consumption in the next 12-18 months, particularly in Russia.

Moody's also considers that the new but growing nascent e-cigarette industry could represent an increasing competitive threat for European tobacco manufacturers.

Moody's expects players to continue to raise prices above volume declines, that developing market consumers will keep trading up to premium brands and companies will continue to increase efficiency.

Moody's would consider moving the outlook to positive if operating profit growth rose to 6% or above and regulatory pressures eased. The rating agency would move the outlook to negative if operating profit contracted or there was a dramatic regulatory change or litigation.

The new report - European Tobacco: Slowing Profit Growth Turns European Tobacco Outlook Stable - is now available on www.moodys.com.

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