Cigarette maker Reynolds American Inc. (RAI) Thursday reported a surge in its third-quarter profit in the absence of impairment and restructuring charges that were included in the prior-year quarter results. Revenue for the quarter was lower, reflecting a decline in cigarette volume due to increased excise taxes and weak economy. Moving forward, Reynolds American lifted its adjusted earnings per share outlook for fiscal 2009.
The company's net income rose 71.6% to $362 million or $1.24 per share from $211 million or $0.72 per share a year ago. On an adjusted basis, net income decreased 4% to $362 million or $1.24 per share from $377 million or $1.29 per share in the last year.
The adjusted results exclude prior-year non-cash trademark impairment charges of $0.37 per share and restructuring charges of $0.20 per share.
On average, 10 analysts polled by Thomson Reuters expected earnings of $1.18 per share for the quarter. Analysts' estimate typically excludes one-time items.
Reynolds American's quarterly revenues reached $2.15 billion, a decline of 5.3% from $2.27 billion reported in the corresponding quarter last year. Six analysts had a consensus revenue estimate of $2.19 billion for the quarter.
Net sales, external were $2.05 billion, compared with $2.16 billion a year ago. Net sales, related party declined to $107 million from $116 million last year.
For the sequentially preceding quarter, the company's net income was $377 million or $1.29 per share on sales of $2.25 billion.
Commenting on the third-quarter results, the company's chairman, president and chief executive officer Susan Ivey stated, "Reynolds American's third-quarter results reflect continued improvement in the company's operating businesses despite the year's many challenges."
"This year has been marked by unprecedented increases in excise taxes on tobacco products, an extremely weak economy and intense competitive activity. But the strength of our strategies and our operating companies' brands has allowed us to continue to perform well even in these difficult times," she said.
The company also stated that the third quarter was highlighted by additional improvements in adjusted operating margin and key-brand share performance at R.J. Reynolds, continued strong gains in moist-snuff volume and share at Conwood, and robust growth at Santa Fe Natural Tobacco Co.
During the quarter, R.J. Reynolds' operating income declined 4.7% from last year to $532 million. Compared with the prior-year period, higher pricing, lower promotional expense and continued productivity gains largely offset the impact of lower cigarette volume and higher pension expense, the company noted.
R.J. Reynolds' third-quarter cigarette shipment volume declined 11% from the prior-year period, compared with an industry decline of 12.6%. The company's performance was benefited from strong volume on Pall Mall, which retained a significant portion of the volume it gained from its second-quarter pulse promotion.
R.J. Reynolds' total cigarette market share was 28.2% in the quarter, down 0.2 percentage points from the prior-year period, with growth-brand gains partially offsetting declines in support and non-support brands, the company stated.
The company's growth brands, Camel and Pall Mall, increased third-quarter cigarette market share by 2.1 percentage points, bringing their combined share to 12.7%. These brands have now grown to 45% of R.J. Reynolds' total cigarette share. Further, the company stated that Camel's smokeless tobacco products, Camel Snus and three styles of Camel Dissolvables, also continued to make good progress.
Another business segment Conwood's third-quarter operating income was $93 million, down 5.1% from the prior-year period, as Grizzly pricing and volume gains were partially offset by lower margins on Kodiak, as well as volume declines in roll-your-own and little cigars. The company's share of shipments also continued to show growth in the third quarter, with a 1.9 percentage point increase to a total share of 29.9%.
For the nine-month period, Reynolds American's net income declined to $747 million or $2.56 per share from $1.08 billion or $3.67 per share last year. Net sales were $6.32 billion, lower than $6.67 billion in the prior-year quarter.
The company also stated that it raised its quarterly dividend earlier this month by $0.05 per share, bringing the rate to $0.90 per share.
Among others in the sector, Lorillard, Inc. (LO) is scheduled to announce its third-quarter results on October 26. Analysts project earnings of $1.52 per share on sales of $1.32 billion.
Going ahead, Reynolds American currently expects fiscal 2009 adjusted earnings per share of $4.60 to $4.70 compared with its prior forecast range of $4.40 - $4.60. This outlook excludes any trademark impairment charges, but includes a $0.40 per share year-over-year increase in pension expense. Wall Street analysts estimate earnings of $4.59 pr share for the full year 2009.
RAI is trading at $48.58, down $0.46, on a volume of 476,018 shares.
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