Tobacco company Reynolds American Inc. (RAI) on Tuesday reported an 88 percent surge in profit for the first quarter, as higher prices and lower costs more than offset a decline in cigarette volumes and sales.
Adjusted earnings per share beat analysts' expectations, while revenues missed their estimates. Looking ahead, the company reiterated its earnings outlook for fiscal 2013.
Daniel Delen, president and CEO of Reynolds American said, "Industry cigarette volumes were negatively impacted by higher energy prices, the expiration of the payroll-tax holiday and fewer shipping days. However, our operating companies' initiatives to strengthen the equity of their key brands are paying off, and this is helping to carve out new areas of growth in their traditional tobacco businesses."
In addition to gains in market share, all of RAI's reportable business segments - RJR Tobacco, American Snuff and Santa Fe - generated higher first-quarter operating income and margins.
The R.J. Reynolds Tobacco segment reported a 4 percent decline in sales for the quarter to $1.56 billion. Cigarette shipments were down 8.7 percent and cigarette market share declined 0.6 percentage points to 26.1 percent. Among brands, Camel market share edged up 0.1 percentage points to 8.5 percent, while Pall Mall market share rose 0.5 percentage points to 9.0 percent.
American Snuff sales grew 6 percent from the prior-year quarter to $167 million. Moist-snuff volume increased 1.1 percent and moist-snuff market share increased 0.8 percentage points to 33 percent. Grizzly shipment volume grew 2.1 percent and market share was up 1.1 percentage points to 29.8 percent.
Santa Fe sales increased 15 percent from last year to $115 million. Natural American Spirit super-premium brand volume grew 14.7 percent and market share edged up 0.2 percentage points to 1.3 percent.
Reynolds American's first-quarter net income was $508 million or $0.92 per share, up from $270 million or $0.47 per share in the year-ago period.
Adjusted earnings per share for the quarter were $0.72, compared to $0.63 in the prior-year quarter. On average, twelve analysts polled by Thomson Reuters expected the company to report earnings of $0.69 per share for the quarter. Analysts' estimates typically exclude special items.
Adjusted earnings exclude $0.21 for the 2013 Master Settlement Agreement or MSA payment credit for 2012 volume year and $0.01 for implementation costs.
Net sales for the quarter decreased 3 percent to $1.88 billion from $1.93 billion in the same period last year. Analysts had a consensus revenue estimate for the quarter of $1.92 billion.
Looking ahead to fiscal 2013, Reynolds American reaffirmed its outlook for adjusted earnings per share in a range of $3.15 to $3.30, excluding the 2013 MSA payment credit and other special items. Analysts expect the company to report earnings per share of $3.20 for the year on revenues of $8.30 billion.
RAI closed Monday's trading at $45.82, up $0.43 on a volume of 2.26 million shares.
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