Tobacco company Reynolds American 2Q profit up 4 pct on higher prices, lower legal costs

  • Article by: MICHAEL FELBERBAUM , AP Tobacco Writer
  • Updated: July 24, 2013 - 5:30 PM

RICHMOND, Va. — Reynolds American Inc. said Wednesday that its second-quarter profit rose 4 percent as higher prices and lower expenses from a longstanding legal settlement offset a decline in cigarette sales.

The owner of the nation's second-biggest tobacco company earned $461 million, or 84 cents per share, for the quarter ended June 30, up from $443 million, or 78 cents per share, a year ago.

The maker of Camel, Pall Mall and Natural American Spirit cigarettes said revenue excluding excise taxes was essentially flat at $2.18 billion.

Analysts polled by FactSet expected earnings of 83 cents on revenue of $2.19 billion.

Its shares fell 44 cents to close at $50.35 Wednesday.

The ongoing weak economy, high unemployment and higher retail prices continue to impact consumers' wallets and drove down demand for cigarettes, CEO Daniel Delen said in a conference call with investors. He also noted that growth in traditional smokeless tobacco products and products like electronic cigarettes are hurting cigarette sales.

The number of cigarettes sold by its R.J. Reynolds Tobacco subsidiary fell 6 percent during the quarter to 17 billion cigarettes, on par with its estimate for the total industry decline for the quarter. When adjusting for trade inventory changes, the company estimates that industry cigarette volumes were down 4.3 percent.

Volumes for Camel and Pall Mall both fell less than one percent. The brands account for more than 60 percent of Reynolds American's total cigarette volume. Shipments of its other brands, which include Winston, Kool, Doral and Salem, fell 15 percent.

Camel's market share increased 0.4 percentage points to 8.7 percent of the U.S. market, while Pall Mall's market share grew 0.5 percentage points to 8.9 percent.

The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it.

The number of Natural American Spirit cigarettes it sold grew more than 14 percent to about 900 million cigarettes.

Reynolds American and other tobacco companies are also focusing on cigarette alternatives such as snuff and chewing tobacco and electronic cigarettes for future sales growth as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.

Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose more than 9 percent compared with a year ago. The brands had a 33 percent share of the U.S. retail market, which is tiny compared with cigarettes.

The company also is launching a revamped version of its Vuse-brand electronic cigarette in Colorado this month, with its sights set on expanding nationally. It's also moving ahead with its nicotine gum under the Zonnic brand, which is meant to help people stop smoking. In 2009, Reynolds bought the Swedish company Niconovum AB, which makes nicotine gum, pouches and spray products.

Reynolds American kept its profit outlook for the year at $3.15 to $3.30 per share. Analysts expect $3.23 per share.

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