Cigarette maker Reynolds American Inc. (RAI) said Thursday that its second quarter profit fell 9.5% from last year, hurt mainly by costs related to plant closings and change of sales force. However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations. At the same time, the company raised its earnings forecast for the full year 2010.
The Winston-Salem, North Carolina-based company reported GAAP net income for the second quarter of $341 million or $1.17 per share, compared to $377 million or $1.29 per share for the year-ago quarter.
Excluding items, non-GAAP net income for the 2010 second quarter was $385 million or $1.32 per share.
On average, 10 analysts polled by Thomson Reuters expected the company to earn $1.31 per share for the second quarter. Analysts' estimates typically exclude special items.
Net sales for the second quarter fell slightly to $2.245 billion from $2.250 billion in the same quarter last year. Six analysts had a consensus revenue estimate of $2.21 billion for the second quarter.
The company noted that higher cigarette and moist-snuff pricing, productivity gains and higher moistsnuff volume more than offset lower cigarette volume.
Susan Ivey, RAI's chairman, president and chief executive officer, said, "We delivered higher adjusted earnings and margin, driven by our operating companies' key-brand performance and continued productivity gains. These year-over-year gains are particularly outstanding given last year's unusually strong second quarter."
Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Co.; American Snuff Company, LLC; Santa Fe Natural Tobacco Co., Inc.; and Niconovum AB.
R.J. Reynolds is the second largest U.S. tobacco company. Its brands include Camel, Pall Mall, Winston, Doral and Kool. R.J. Reynolds' second quarter sales fell to $1.94 billion from $1.98 billion a year ago.
R.J. Reynolds shipped 20.3 billion cigarettes in the second quarter, down 9.5% from a year earlier. Industry-wide cigarette volumes fell 7.1% in the second quarter, the company noted.
However, R.J. Reynolds' two growth brands, Camel and Pall Mall, both posted second quarter cigarette share and volume gains. Camel's second quarter volumes increased 2.7% year-over-year, while its retail market share grew 0.3 percentage points to 7.8%. Pall Mall's second quarter volumes increased 9.7%, while its retail market share grew 1.8 percentage points to 7.0%.
American Snuff Co. is the second largest U.S. manufacturer of smokeless tobacco products. Its key brands are Kodiak, Grizzly and Levi Garrett. The company's second quarter sales increased to $182 million from $169 million a year earlier.
American Snuff's total moist-snuff shipment volume increased 3.0% year-over-year to to 97.1 million cans in the second quarter, driven by its flagship brand Grizzly.
Reynolds American said that it remains intensely focused on driving profitable growth by strengthening its key brands, improving productivity and investing in cigarette and smokeless-tobacco innovations to meet changing consumer preferences.
In May, Reynolds American said its R.J. Reynolds subsidiary will close cigarette factories in Winston-Salem and Yabucoa, Puerto Rico, over the next year and transfer production from those older plants to its largest and newest cigarette factory in Tobaccoville, North Carolina. The company also said its American Snuff Co. subsidiary is expanding its smokeless-tobacco processing and manufacturing capacity.
For the first six months of the year, Reynolds American reported GAAP net income of $423 million or $1.45 per share, compared to $385 million or $1.32 per share for the same period last year.
Non-GAAP net income for the first-half was $710 million or $2.43 per share, compared to $670 million or $2.30 per share in the prior year period.
Net sales for the first-half rose to $4.23 billion from $4.17 billion in the corresponding year-ago period.
Based on solid operating and marketplace performance in the first half, the company raised its full year 2010 non-GAAP earnings outlook to a range of $4.90 to $5.05 per share from prior outlook of $4.80 to $5.00 per share. Analysts currently expect the company to earn $4.92 per share for the full year 2010.
Among others in the industry, Philip Morris International, Inc. (PM), whose international brands include Marlboro, Merit, Parliament and Virginia Slims, on Thursday reported second quarter profit that increased 28% from last year, driven by revenue growth mainly in the Asia. The company also raised its full year 2010 earnings forecast.
Altria Group Inc (MO), the parent of Philip Morris USA, on Wednesday reported a 3.2% rise in second quarter profit and raised its earnings outlook for the full year.
Reynolds American shares are currently trading at $56.51, up 69 cents or 1.24%. The shares are trading in a 52-week range of $39.00 to $56.93.
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