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Reynolds American Q4 Adj. Profit Meets View, Sees 2015 Earnings In Line

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Tobacco company Reynolds American, Inc. (RAI), which has agreed to acquire smaller rival Lorillard, Inc. (LO), on Tuesday reported a 49 percent decline in profit for the fourth quarter from last year, as higher sales were more than offset by one-time charges and expenses.

However, adjusted earnings per share for the quarter matched analysts' expectations. Looking ahead, the company forecast earnings for fiscal 2015 in line with Street estimates.

The company noted that the latest quarter's adjusted earnings reflect higher cigarette and moist-snuff pricing, as well as the completion of the federal tobacco-quota buyout. These more than offset lower cigarette volume and increased investment on the Vuse Digital Vapor Cigarette.

The Winston-Salem, North Carolina-based maker of Camel cigarettes and Grizzly smokeless tobacco reported net income for the fourth quarter of $148 million or $0.28 per share, down from $292 million or $0.54 per share in the prior-year quarter.

The results for the latest quarter include charges for pension and post retirement mark-to-market adjustments, transaction-related and financing costs, and Engle progeny lawsuits.

Excluding items, adjusted net income for the latest quarter was $466 million or $0.87 per share, compared to $416 million or $0.77 per share in the year-ago quarter. On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.87 per share for the quarter. Analysts' estimates typically exclude special items.

However, net sales for the quarter grew 4.7 percent to $2.13 billion from $2.04 billion in the same quarter last year. Analysts' consensus revenue estimate was $2.14 billion.

The company's R.J. Reynolds Tobacco segment generated sales of $1.67 billion, up 1.8 percent from the prior-year quarter. However, shipments were down 4.9 percent and cigarette market share edged down 0.3 percentage points to 26.4 percent.

American Snuff sales grew 2 percent from last year to $202 million. But, moist-snuff volume declined 1 percent, while moist-snuff market share edged down 0.1 percentage points to 34.3 percent. Grizzly shipment volume grew 3.5 percent, while market share was in line with the year-ago period at 31.3 percent.

Santa Fe sales increased 18 percent from the year-ago period to $176 million. Natural American Spirit super-premium brand volume grew 14 percent, and market share edged up 0.3 percentage points to 1.8 percent.

For fiscal 2014, Reynolds American's net income declined to $1.47 billion or $2.75 per share from $1.72 billion or $3.14 per share in the prior year. Adjusted earnings for the year were $3.42 per share, compared to $3.19 per share last year.

Net sales for the year rose 3 percent to $8.47 billion from $8.24 billion in the previous year.

Looking ahead to fiscal 2015, Reynolds American issued its outlook for adjusted earnings in a range of $3.65 to $3.80 per share, up 6.7 percent to 11.1 percent from adjusted earnings of $3.42 per share in 2014. The guidance excludes any impact from the proposed transactions.

Analysts expect the company to report earnings of $3.71 per share for the year.

Reynolds American agreed in mid-July to acquire Lorillard and its popular Newport menthol brand in a cash and stock deal valued at $27.4 billion.

Shareholders of both companies, Reynolds American and Lorillard, approved the merger transaction on January 28, 2015. The company remains confident that the transaction will close in the first half of 2015.

RAI closed Monday's trading at $68.45, down $0.55 or 0.80 percent on a volume of 2.36 million shares.

by RTT Staff Writer

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