Vindicating its move into smokeless tobacco products...

February 7, 2008 - Vindicating its move into smokeless tobacco products, strong sales of moist snuff helped offset lower cigarette volumes and higher settlement payments at Reynolds American (RAI) for 2007. Conwood has continued to post volume, earnings and margin growth since its acquisition in May 2006. During its first full year as a member of the RAI family, Conwood continued to lead growth in the moist-snuff category, and gained 0.9 share points in 2007 – with a full-year share of 26.0 percent. That growth was driven by an additional gain of 1.7 share points on Grizzly, which had a full year share of shipments of 21.1 percent. Despite higher pricing and heavy competition that included a number of new market entrants, Grizzly, the moist snuff deep-discount entry, grew at more than twice the industry rate. In 2007, Grizzly captured well over 40 percent of all volume growth in the moist-snuff category. Conwood’s leading premium entry – Kodiak – experienced volume and share declines last year in the face of heavy promotion by competitive brands. Camel Snus, represents the brand’s first foray into a new category: smoke-free tobacco products that are also spitless. Camel Snus provides adults with a discreet way to enjoy tobacco pleasure. In 2007, R.J. Reynolds expanded its test of Camel Snus to a total of eight markets, and the company plans to expand into additional markets in the second quarter of 2008. In the only cigarette growth segment menthols: Kool, R.J. Reynolds’ menthol growth brand, led by the growing popularity of Kool’s XL styles. Kool XL, a smoother, wider cigarette, was introduced in 2006 in 27 states. Last year, the company expanded Kool XL nationally, along with a new, milder style called XL Blue. That helped Kool maintain its overall market share of 3.1 percent despite intense competition in the menthol market and the above-average price increases we’ve taken to further strengthen Kool’s profitability.” The 3rd growth brand, Pall Mall, continues to gain share on the strength of its positioning as a great product at a great price. Pall Mall remained focused on volume and margin growth in 2007 as the brand added another 0.3 share points, for a full-year share of 2.1 percent. Filippe Goossens of Credit Suisse noted that cigarette volumes declined faster than expected, and growth rates for the smokeless segment decelerated.