July 23, 2010 - Reynolds American Inc. (RAI) said Thursday, July 22nd that its second quarter profit fell 9.5% from last year, hurt mainly by costs related to plant closings and change of sales force.
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.
The company noted that higher cigarette and moist-snuff pricing, productivity gains and higher moist snuff volume more than offset lower cigarette volume.
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. In the 2009 second quarter, shipments were skewed higher by the timing of the U.S. tax increase. The company shipped 20.3 billion cigarettes in the quarter, down 9.5 percent from a year earlier, but key brands Camel and Pall Mall both increased market share. Reynolds also shipped 97.1 million cans of smokeless tobacco under brands like Grizzly and Kodiak.
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%.
R.J. Reynolds' total second quarter cigarette market share of 27.9% was down 0.8 percentage points from the prior year quarter. This was largely driven by the losses on its de-emphasized private label brands which now represent a total of only six tenths of a share point.
Excluding private label brands, the company’s volume performance was better than that of the industry with the decline of 6.9% in the quarter and 3.9% for the half. R.J. Reynolds' first-half cigarette shipment volume was down 6.3% compared with an industry decline of 4.9%. Camel and Pall Mall each reported second quarter cigarette volume and share gains. Those two growth brands now account for more than half of the company’s total share and volume. Their combined second quarter market share was 14.8% up 2.1 percentage points. Camel's second quarter cigarette market share of 7.8% was up three tenths of a point from the prior year quarter. Camel’s menthol styles including Camel Crush increased half a share point to 1.8 share of market in the quarter. Camel also continues to make progress as a total tobacco brand. Camel Snus remained stable at three tenths of a share on a cigarette equivalent basis and on a moist snuff equivalent basis; Camel Snus had a second quarter share of 3.5%.
Now turning to Pall Mall, which continues to deliver excellent performance. Pall Mall increased its second quarter market share to 7% that was up 1.8 percentage points from the year ago period and up 0.5 share from the prior quarter.
Smokeless products - American Snuff:
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. American Snuff's second quarter adjusted operating income was $85 million down 7.1% from the prior year quarter. That decline was due to lower volume on roll-your-own and other non-core tobacco products which more than offset higher moist snuff pricing and volume. American Snuff also had higher second quarter costs relating to the timing of promotional spending and FDA compliance.
Grizzly's appeal among a broad base of moist snuff consumers is the recently introduced Grizzly 1900 Long Cut. A natural product with a traditional long cut, Grizzly 1900 Long Cut has performed well since its introduction earlier this year. American Snuff continues to focus on enhancing Grizzly's brand equity and value to consumers. The recent addition of embossed metal lids is improving the brand's quality perceptions among moist snuff consumers.
American Snuff's premium Kodiak brand, even though Kodiak share of shipments has experienced a modest decline in the first half of this year, the brand's volume has increased despite being significantly out promoted by other premium moist snuff competitors. Camel Dip the company's latest premium introduction is bringing innovation to the moist snuff category and is performing well. Camel Dip which leverages Camel's authentic heritage was expanded to selected outlets in 10 additional
American Snuff total moist snuff shipment volume grew 3% for the quarter, for the first half which eliminates the impact of trade inventory fluctuations; the company's moist snuff shipments increased 7.1%. As Susan mentioned, industry shipment were up about 9% for the quarter and the half while consumer off-take was up about 6%.
American Snuff's share of shipments for the second quarter was in line with the prior year quarter at 29.4%. Grizzly's second quarter shipment volume increased by 4.2%. For the first half, the brand continued to outpace industry consumption with a 7.6% increase. And Grizzly's share of shipments increased slightly to 25.5% in the quarter. The brand also improved its position in the fast growing pouch segment, accounting for nearly 25% of all pouch sales in the second quarter. Share of shipments for American Snuff's premium Kodiak brand declined 0.2 percentage point from the prior year quarter, and Kodiak's volume was down 5.5% in the second quarter but up 2.6% for the half. So that's an overview of American Snuff. Now we'll take a look at productivity.
Smokeless Products - Camel SNUS:
Camel Snus, the company’s first smoke-free product, was expanded nationally last year and its share is holding steady. Camel Snus have moved away from its introductory promotional offers to a simplified pricing strategy, and this will help R.J. Reynolds to focus more on consumer engagement and education of the Snus proposition. This summer, Camel Snus is introducing two new styles, Robust and Winterchill. Packed in larger pouches, these new products offer tobacco consumers a richer, more full body tobacco taste. Robust and Winterchill have performed very well in their initial test markets and appeal to both current Snus users who want more will take and moist-snuff users who like the convenience of a spit-free product.
(Camel SNUS - two new flavors now a total of four..)
All four styles of Camel Snus have also been upgraded to feature bold new packaging and are being sold in stores nationwide.
Smokeless Products - Camel Dissolvables:
Also building interest is Camel's new line of dissolvable products; Orbs, Sticks and Strips. Introduced in three lead markets last year, Camel Dissolvables are making further product and packaging improvements based on feedback from adult tobacco consumers. We’ve also learned that a broad range of adult tobacco consumers have a high level of interest in this new product concept.
RAI delivers strong second-quarter performance; Raises full-year guidance
Reynolds American, Inc. Q2 2010 Earnings Call Transcript by Seeking Alpha, 7/22/2010.
Q&A - Reynolds American, Inc. Q2 2010 Earnings Call Transcript by Seeking Alpha, 7/22/2010.