Reynolds American Announces $2.5 Billion Share Buyback

I sometimes think these announcements are done specifically to annoy me. Reynolds American ($RAI) just announced a $2.5 billion share repurchase plan. To be more specific, the plan is “up to” $2.5 billion so that includes other numbers…such as $0. Also, this isn’t all at once. The program will last for two-and-half years.

Basically, this news is released so the company can claim that it’s releasing good news.

I really like RAI a lot and I especially like the dividend. A little over a year ago, RAI raised its quarterly dividend from 45 cents per share to 49 cents per share. Then in February, they raised it again — this time to 53 cents per share.

A $2.5 billion share buyback program works out to $4.30 per share which is 11% of the current stock price. I think RAI shareholders would much rather have that in cash than the hope that it will boost the share price that much.

The company is also making an accounting change that will alter their reported earnings.

Reynolds American generally analyzes its pension and post-retirement plan performance annually as of the end of the year. Under the change, any actuarial gains or losses outside a 10 percent range will be recognized during the fourth quarter as a mark-to-market adjustment included in pension and post-retirement expenses.

The accounting change will be applied retrospectively to prior periods.

As a result of the change, Reynolds American expects adjusted full-year earnings of $2.77 to $2.82 per share. Using the company’s previous accounting methodology, Reynolds American had expected $2.63 to $2.68 a share. Analysts surveyed by FactSet had expected $2.64 per share, on average.

Posted by on November 15th, 2011 at 11:43 am


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