Reynolds American first-quarter profit sharply lower.

April 29, 2009 - Reynolds American Inc. (RAI), the nation's second-largest cigarette company, charges related to the value of its trademarks sent its first-quarter profit sharply lower. Adjusted results beat analysts' estimates.

The Winston-Salem, N.C.-based maker of investment brands, Camel and Pall Mall cigarettes said cigarette volume was hurt as tobacco retailers and wholesalers cut their orders ahead of a one-time federal tax on their inventory. Higher prices and productivity helped offset that as well as increased pension expenses.

It is interesting to note for Q1 2008 RAI posted weaker-than-expected first-quarter profit 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.

Sales dropped 7 percent to $1.92 billion from $2.06 billion — just below analysts' forecast of $1.97 billion. For the quarter, Reynolds said it saw a 10.5 percent decrease in its shipment volume to 18.7 billion cigarettes. The company said total industry volumes declined 10.4 percent in the period.

Tobacco sellers cut their orders since they had to pay a "floor" tax of 62 cents per pack on whatever they had on hand before a 62-cent-per-pack retail sales tax went into effect April 1.

Reynolds said the retail market share its Camel brand increased 0.1 to 7.6 percent compared with the year-ago period. The Pall Mall brand rose 0.6 to 2.9 percent.

Reynolds, like most cigarette companies, is trying to find new ways of selling tobacco as cigarette demand has fallen because of smoking bans, health concerns and social pressure. The industry is focusing more on cigars and smokeless products such as moist snuff, chewing tobacco and snus. R.J. Reynolds products: Camel Snus brand was expanded nationally and also introduced a dissolvable tobacco product called Camel Orbs in three test markets.

The company, which also owns smokeless tobacco company Conwood Co. Volume of Kodiak, Grizzly and Conwood's other moist snuff products grew less than one percent to 76.4 million cans compared with 75.9 million cans in the year-ago period. Grizzly, the nation's best selling moist-snuff brand delivered exceptional share growth, gaining 2.6 share points over the prior year quarter - strength was especially evident in the southeast.

The company plans to begin testing Camel Dip, a new moist snuff, in Colorado and Florida through Conwood this summer.

Reynolds American Inc. Q1 2009 Earnings Call Transcript, Seeking Alpha, 4/29/2009.

Reference: Reynolds American Q1 profit slides on charges by MICHAEL FELBERBAUM (AP Business Writer Michelle Chapman in New York contributed to this report), , 4/29/2009.