Reynolds American Inc. highlights business report q4 and entire 2010..

February 4, 2011 -

Reynolds American Inc. (RAI) consist of the following:
* R.J. Reynolds Tobacco Company is the second-largest U.S. tobacco company. The company's brands include six of the 10 best-selling cigarettes in the United States: Camel, Pall Mall, Winston, Kool, Doral and Salem.
* American Snuff Company, LLC is the nation's second-largest manufacturer of smokeless tobacco products. Its leading brands are Kodiak, Grizzly and Levi Garrett.
* Santa Fe Natural Tobacco Company, Inc. manufactures Natural American Spirit cigarettes and other additive-free tobacco products, and manages and markets other super-premium brands.
* Niconovum AB markets innovative nicotine replacement therapy products in Sweden and Denmark under the Zonnic brand name.

RAI's, President and CEO, Susan Ivey - will be retiring on February 28th after 6 1/2 years - this will be her last earnings call. Dan Delen, RAI’s President and CEO-elect, will take over on March 1st.. (Reynolds American Inc - Susan Ivey, Ms. Everything, to retire..)

Question: outlook for the cigarette industry, in terms of volume and also your expectations for state excise taxes? Dan Delen - I think for 2011 we really would see the industry cigarette volume to be very similar to 2010, down around 4%, and in moist snuff as well, I think similar to 2010 we would see an increase there in the 6 to 7% range. I think really when we look across both categories, pretty steady as she goes. I think that’s extremely positive, and a positive backdrop to our business looking forward.

Key brands deliver additional 4Q10 volume and share gains
o Camel market share up 0.6 points
o Pall Mall market share up 2.3 points
o Grizzly share of shipments up 0.8 points

Ivey said that RAI’s Santa Fe Natural Tobacco Company, Inc. subsidiary continued to deliver robust growth in 2010, with double-digit volume and earnings gains.

Ivey noted RAI’s announcement on Jan. 14 that it plans to sell its Lane, Limited subsidiary, which manufactures a variety of tobacco products, to Scandinavian Tobacco Group A/S. (Scandinavian Tobacco Group A/S (STG) plans for the future..) “This will allow RAI’s operating companies to devote their energy and resources to the primary growth categories within their businesses,” Ivey said.

R.J. Reynolds has reduced product offerings by more than 80 percent, ending 2010 with less than 150 SKUs.

The number of cigarettes the Winston-Salem, N.C., company sold fell 5.1 per cent to 19 billion cigarettes during the quarter, compared with its industry estimate of 4.7 per cent.

Continuing strong market-share gains from its Pall Mall cigarette and Grizzly moist-snuff brands lifted R.J. Reynolds’ cigarette growth brands continued to post strong gains in line with the company’s defined brand-portfolio strategy. These gains are significantly offsetting declines on the company’s other cigarette brands. Those declines were driven by private label brands that the company has been de-emphasizing and delisting to reduce complexity and streamline its product offerings.

The company’s total fourth-quarter cigarette market share of 28.3 percent was down 0.2 percentage points from the prior-year quarter. However, excluding the private label brands, R.J. Reynolds’ total cigarette market share was up 1.0 percentage point to 28.1 percent. For the full year, total cigarette market share was 28.1 percent, down 0.2 points from the prior year period, but its market share was up 0.7 points at 27.5 percent excluding private label brands. R.J. Reynolds’ fourth-quarter cigarette shipment volume was down 5.1 percent from the prior year
quarter, but down just 1.9 percent excluding private label brands. By comparison,
fourth-quarter industry volume declined 4.7 percent. For the full year, R.J. Reynolds’ cigarette shipment volume was also down 5.1 percent from the prior-year period. Excluding private-label brands, volume was down 2.1 percent compared to the industry decline of 3.8 percent.

Both of the company’s growth brands, Camel and Pall Mall, again delivered higher market share and volume. For the fourth quarter, combined growth-brand market share of 16.2 percent was up 2.9 percentage points from the prior-year quarter.

Pall Mall’s continued rise in popularity as a lower-cost cigarette option has helped it overtake Camel as not only the top Reynolds brand, but also the third largest U.S. brand. Pall Mall’s market share was 8.3 percent, up from 7.8 percent in the third quarter and 6 percent in the fourth quarter of 2009. By comparison, Camel’s market share was 8 percent, unchanged from the third quarter and up from 7.4 percent a year ago.

Cigarettes sold by Pall Mall grew 19 per cent during the quarter as the company continues to promote the brand as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. Its share of the U.S. market grew 2.3 points to 8.3 per cent in the quarter. Camel sold 8.5 per cent more cigarettes during the period, while its U.S. market share grew 0.6 points to 8 per cent.

Smokeless Tobacco

Reynolds American said it sold 8.2 per cent more of its Kodiak and Grizzly smokeless tobacco products in the fourth quarter. Its smokeless market share grew 0.5 points to 29.9 per cent of the U.S. market. Reynolds American's larger competitor, Altria Group Inc., parent company of Marlboro maker Philip Morris USA, said last week that raising prices and cutting costs helped its third-quarter net income climb nearly 27 per cent. The number of cigarettes it shipped fell 7 per cent.

Camel SNUS, the brand’s first modern smoke-free product, continues to perform well, with its two new styles — Robust and Winterchill — adding to that performance. These two larger pouch styles were introduced in the third quarter, and offer adult tobacco consumers a richer, more full-bodied tobacco taste, as well as smoke-free, spit-free convenience. On a moist snuff equivalent basis, Camel SNUS had a 4.5 percent share in the fourth quarter.

R.J. Reynolds is making product and packaging upgrades to Camel’s new line of innovative dissolvable tobacco products — Orbs, Sticks and Strips — which will be introduced in two new lead markets in March.

Industry moist-snuff shipments were up 5.5 percent in the fourth quarter, and up 8.1 percent for the year. On a consumer off-take basis, moist-snuff volume increased about 6 percent for the year. Grizzly, the company’s flagship brand, has delivered solid growth this year, following a challenging first quarter. The brand benefitted from American Snuff’s focus on equity building, which included the packaging upgrade to embossed metal lids in the second quarter. The brand also benefited from the third-quarter expansion of R.J. Reynolds’ field trade-marketing organization to serve American Snuff. The brand set a new record-high marketplace performance in the fourth quarter. Share of shipments gained 0.8 percentage points to 26.1 percent, while on a consumer off-take basis
as measured by AC Nielsen, Grizzly was up 1.1 percentage points from the prior-year
quarter, at 27.2 percent. Grizzly’s fourth-quarter shipment volume increased by 9.9 percent, and was up 6.8 percent for the year. The brand further strengthened its position in the rapidly growing pouch segment, which now represents almost 9 percent of total moist-snuff category sales. Grizzly captured 24.3 percent of all pouch sales in the fourth quarter and has the number one Wintergreen pouch
style in the market.

Question to Dan Delen: what do you think could happen to volumes if there was an actual menthol ban? Well, let me start by saying this. I don’t believe a menthol ban is imminent. I think the TPSAC (Tobacco Products Scientific Advisory Committee) office is going to make its recommendations here at the back end of March 2010, but just to remind everybody that that is just a recommendation at this stage, and then we’ll need to see what the FDA actually decides to do, based on whatever recommendation comes out to the advisory committee. So I think that we don’t have a specific direction from the FDA how they might want to act, I think it’s a little bit premature to speculate as to how sort of competitive positions or volumes in different segments might settle in in the marketplace.

References: RAI: Key-brands momentum drives strong 2010 results, SOURCE: RAI, Inc. 2/3/2011; Reynolds American CEO Discusses Q4 2010 Results - Earnings Call Transcript, 2/3/2011; Reynolds American CEO Discusses Q4 2010 Results - Earnings Call Transcript - Questions and Answers, Seeking Alpha, 2/3/2011.

RAI - news briefs 2010 1st 3-quarters:
Highlights - Reynolds American - earnings q1 2010..;
Highlights RAI q2 2010 Earnings Report..;
RAI - highlights q3 2010 earnings report...



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