UPDATE: Reynolds American 2Q Profit Slips 11% On Cigarette Volume Decline

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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