Reynolds American first quarter 2008 profit disappointing..

April 30, 2008 - RAI posted weaker-than-expected first-quarter profit on Wednesday (4/30/2008) due to declines in sales of cigarette brands on which it focuses less marketing (non-growth brands) and pressure from competitors amid the weak U.S. economy. The maker of Camel cigarettes and Grizzly smokeless tobacco also cut its full-year profit forecast, citing the challenging economic environment. Its shares fell as much as 8 percent to a two-year low. "The guidance downgrade ... is due to an increasingly competitive environment in cigarette and smokeless," JP Morgan analyst Erik Bloomquist wrote in a research note. Reynolds Chief Executive Susan Ivey said the company was disappointed in the results and the performance of R.J. Reynolds but added that it faced a number of challenges. "We are ... continuing to see shifts between tobacco products and categories," she told analysts on a conference call, citing growth in such products as little cigars, roll-your-own cigarettes and moist snuff. The tough economy has not led many people to quit smoking, but it has resulted in more demand for deep-discount cigarettes and lower-priced products, Ivey said. Growth brands - Camel, Kool and Pall Mall – posted a combined share gain of 0.5 percentage points from the prior-year period, with a first-quarter share of 13.2 percent. That performance was driven by continued growth of Camel and Pall Mall, and a slight decline on Kool. Camel Snus, R.J. Reynolds’ first effort to broaden Camel’s appeal beyond cigarettes, is on track for a second-quarter expansion to nine additional major markets across the United States. Camel Snus, a smoke-free, spitless tobacco product that comes in a small pouch, is currently being tested in eight markets. With continued learning from this test, the company remains optimistic about the potential for this new product. Conwood - Moist-snuff category growth continued in the first quarter with a total industry volume increase of 5.5 percent. Gains on Grizzly, and Kodiak’s improved performance, drove Conwood’s total moist-snuff shipments up 1.2 share points to a first-quarter share of 26.9 percent. Grizzly’s continued growth further strengthened the brand’s position as the industry’s third-largest and fastest growing moist-snuff brand. That performance was aided by the recent launch of two new Grizzly styles – Snuff and Wintergreen Pouch – which are both being expanded nationally this year. References: Returning Value in a Challenging Time, Reynolds American Inc., 4/30/2008; Reynolds American profit disappoints, stock dips,Reuters, 4/30/2008.