UPDATE: Reynolds American 2Q Profit Slips 11% On Cigarette Volume Decline
July 22 2011 - 9:14AM
Dow Jones News
Reynolds American Inc.'s (RAI) second-quarter earnings slipped
11% as the company booked a litigation charge and saw costs
rise.
Still, the company raised the low end of its full-year earning
forecast by 2 cents a share, now expecting $2.62 to $2.70 a share,
as higher cigarette and smokeless-tobacco prices work their way
down to the bottom line.
Reynolds American, the nation's second-largest tobacco company
behind Altria Group Inc. (MO), has continued to see cigarette
volumes decline amid demographic changes and widespread
public-smoking bans. The company in recent years has turned its
attention to a few core brands, such as Pall Mall and Camel, and is
looking to smokeless products like its Grizzly moist snuff for
growth.
Reynolds reported a profit of $304 million, or 52 cents a share,
down from $341 million, or 58 cents a share, a year earlier.
Excluding a court settlement and other items, adjusted earnings
rose to 67 cents a share from 66 cents. Net sales edged up 1% to
$2.267 billion.
Analysts polled by Thomson Reuters had expected earnings of 71
cents a share on $2.27 billion.
In June, the U.S. Supreme Court rejected the tobacco industry's
appeal of a long-running lawsuit, requiring the companies to fund a
Louisiana smoking-cessation program. Reynolds was expected to take
the biggest hit from the decision, according to analysts at Stifel
Nicolaus, as it accepted 50% interest in the damage award.
R.J. Reynolds Tobacco, the company's cigarette unit, saw its top
line increase 0.7% to $1.96 billion as domestic volume fell 4.4%.
Accounting for the elimination of private-label brands, volume fell
3.6%, still below the industrywide decline of 1.3%. Total market
share, excluding private label brands, was unchanged from a year
ago at 27.3%.
Growth brands, which include Camel and Pall Mall, gained 1.5
points of market share to hold 16.3% of the market.
The quarter saw "intense competitive activity," Chief Executive
Daniel Delen said, and sales continue to struggle due to continued
economic weakness. He said the company is focused on balancing
profitability and market-share growth.
At the American Snuff unit, which makes Grizzly- and
Kodiak-brand moist snuff, revenue fell 16% to $153 million, as the
prior year included Lane Ltd, which was sold earlier this year.
Volume rose 3.6%, with market share increasing 1.5 points to
31.3%.
Shares of Reynolds were recently off 2.6% to $37.50 in premarket
trading. The stock has gained 18% year-to-date through Thursday's
close.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
-Mia Lamar contributed to this story
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