Ust Tobacco Company Case Study

UST has been a dominant company in the tobacco industry especially, in the moist tobacco industry. The company internalizes conservative debt policy and high dividend payout. UST is planning to buy back its shares which would help boost returns to stock-market investors, companies do not always use them just to demonstrate that their stock is undervalued, or to distribute excess cash to shareholders. However, the company is confronted with legislative and legal issues. Nevertheless, consumer demand for UST products remains the same. When evaluating the company risk, its business risk stems from the price elasticity of its products. The business risks associated with UST are litigation and product diversification risks, yet apparently wine and cigars are less effective in UST's EBIT. UST products have a steady consumer demand, and the company produces positive cash flows year-to-year. Furthermore the company has a dominant market position and brand name. As a result, UST has relatively low business risk. Probably UST's bond is rated as A.

Here is the financial performance below:

Financial Information 5- Yr. CAGR 10- Yr. CAGR

Net Sales 5% 9%

EBITDA 6% 11%

Earnings per share 9%

13%

5- Yr. Average 10- Yr. Average

Gross Profit Margin

Net Margin

Dividend Payout

ROE 79.7%

32.7%

11%

122.8% 77.3%

31.3%

16%

89.1%

Financial data indicates that compound annual growth rate has decreased in Net Sales, EBITDA and earnings per share in the past five years compared with the past ten years. Less consumer demand and increase in competitors might have influenced negatively. When observing the five and ten year, the data shows that UST financials are still increasing and also steady at some point. There has been increased competition in the premium smokeless tobacco market. For this reason, UST has been losing market share with products approximately 1.6% decline in market share. UST seeks to attract consumers with the price value smokeless tobacco products. Besides, the company searches for innovation in order to become a dominant again in their market. UST was too slow in responding to smaller competitors in the value segment of the market. UST had no immediate opportunity for international expansion. Moreover, public and political thought was negative due to health issues.