UPDATE: Reynolds American 4Q Net Jumps 44%;Core Brands Improve

Reynolds American Inc.'s (RAI) fourth-quarter profit rose 44%, driven by gains in its smokeless unit and productivity improvements, but weak results from noncore cigarette brands stunted revenue gains.

Shares slid 1.2% to $32.03 as adjusted results narrowly missed Wall Street's expectations.

The tobacco company expects adjusted full-year earnings of $2.60 to $2.70 a share. Analysts surveyed by Thomson Reuters projected a profit of $2.66.

Reynolds American, the country's second-largest tobacco company behind Altria Group Inc. (MO), shifted its strategy recently to focus on a few cigarette brands, such as Camel and Pall Mall. The company has slashed its product offerings by 80% and, in January, agreed to sell its Lane Ltd. roll-your-own and pipe tobacco unit to Denmark's Scandinavian Tobacco Group AS for $205 million. Reynolds American is also working to expand its smokeless-tobacco business to offset long-term declines in cigarette volumes.

The company said its new, narrower approach is paying off. Reynolds American reported a profit of $309 million, or 53 cents a share, up from $215 million, or 37 cents a share, a year earlier. Excluding write-downs and costs primarily related to plant closings and new marketing investments, adjusted earnings rose to 60 cents a share from 55 cents. Net sales fell 0.7% to $2.08 billion.

Wall Street forecast per-share earnings of 61 cents on revenue of $2.15 billion.

Gross margin widened to 46.8% from 45.2%, with the company continuing to slim its production outfit as it simplifies its catalog.

Earnings at R.J. Reynolds Tobacco, the company's largest division, jumped 58%, as volume climbed 8.5% for Camel and 19% for value brand Pall Mall. Both product lines notched market-share gains. Overall share slid 0.2 point to 28.3% but gained 1 point to 28.1% excluding private-label products. Morgan Stanley analysts said in a client note that share gains may have come at the expense of lower per-pack revenue growth.

Even with promotions, total R.J. Reynolds domestic volume fell 5.1%, dragged down by private-label brands. Meanwhile, the company said industrywide volume declined 4.7%.

At American Snuff, which makes Grizzly and Kodiak moist snuff, profit decreased 17%. On an adjusted basis, the unit's profit rose 24% on higher pricing and volume. Total moist snuff volume climbed 8.2%, while the total share of shipments rose 0.5 percentage point to 29.9%.

The company said it is pleased with how "resilient" Grizzly is, given increased competition. Altria, which owns Copenhagen and Skoal smokeless products, has been aggressive in expanding that business.

Analysts said they were disappointed, though not entirely surprised, that Reynolds American hasn't yet launched a new share-repurchase program. The company, which had $2.2 billion in cash at year-end, said it will continue to explore opportunities to return cash to shareholders.

Morgan Stanley analysts estimated a $500 million share buyback would contribute about three cents to this year's per-share earnings, while Stifel Nicolaus analysts said a repurchase program would likely be more beneficial to 2012 results.

-By Melissa Korn and John Kell, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

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