Moody's has a positive outlook on European tobacco companies for the next 12-18 months, when the...


Moody's has a positive outlook on European tobacco companies for the next 12-18 months, when the agency expects operating profits to grow 6%. Emerging-market growth and price inelasticity will continue to provide good cash flow and offset "declining sales volumes in mature markets and mounting regulatory pressures." (PR)

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Comments (2)
  • doc47
    , contributor
    Comments (1715) | Send Message
     
    "Price inelasticity will help..."??? I thought the ability to easily raise prices (i.e., price elasticity) was what floated their boat. With everyone raising taxes on tobacco products, the companies better be able to continue to raise their prices.
    4 Jul 2012, 10:37 AM Reply Like
  • The Enterprising Value Inve...
    , contributor
    Comments (571) | Send Message
     
    i think you are confused.

     

    When something exhibits price elasticity it means for each unit price change, the quantity change will be more than that unit amount.

     

    Price inelasticity means that for a given unit price change, the quantity demanded will not change as much as that unit amount.

     

    Tobacco has relatively high price inelasticity. This means if the companies raise prices 5%, unit volumes will not fall by 5% they will fall less than that, say by 1%. This is beneficial to long term profitability.
    24 Jul 2012, 03:23 PM Reply Like
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