Reynolds American Earnings Preview

From AP:

Reynolds American Inc., the second-biggest U.S. cigarette company and the maker of Camel brand products, is expected to report rising profit despite lower revenue when it releases its second-quarter results before the stock markets open Friday.

Americans are continuing to buy fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma.

WHAT TO WATCH FOR: Investors will be looking for signs that growth in Reynolds American’s Pall Mall brand will continue. The company, based in Winston-Salem, N.C., has promoted Pall Mall as a longer-lasting and more affordable cigarette. It says half the people who try the brand continue using it as they weather the weak economy and high unemployment. Reynolds also sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.

Pall Mall’s first-quarter volume grew 16 percent, and its share of the U.S. market increased 2 points to 8.5 percent. Camel volumes were stable and its share of the cigarette market rose slightly to 7.8 percent. But the company’s other brands are dragging down overall volumes, which fell about 5 percent in the first quarter.

Analysts also will look at the company’s smokeless tobacco products — a segment of the tobacco industry that’s growing and becoming increasingly competitive as companies fight the decline in cigarette sales. Reynolds American’s smokeless volumes grew 13.2 percent last quarter, and its market share grew 1.3 points to 31.1 percent of the U.S. market.

Altria Group Inc., the largest U.S. tobacco company and parent of Marlboro maker Philip Morris USA, said Wednesday that, while cigarette sales fell slightly, it was getting higher prices. Altria’s top-selling Marlboro brand lost 0.2 points of market share to end up with 42.6 percent of the U.S. market, but it sold about 1 percent more of the brand.

WHY IT MATTERS: Reynolds American’s results will help reveal key tobacco industry trends in the U.S.

Continued strength from Pall Mall could mean smokers are still switching to cheaper brands to save money, and those who tried the brand during the recession are remaining loyal. But if volumes of premium brands like Camel are rebounding, that could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes.

WHAT’S EXPECTED: Analysts expect Reynolds American to report adjusted earnings of 71 cents per share, which would be equivalent to $1.42 if not for a stock split the company conducted Nov. 16. Analysts expect Reynolds American to report revenue of $2.1 billion, according to FactSet.

LAST YEAR’S QUARTER: Reynolds American reported adjusted income of $1.32 per share. Its revenue was $2.24 billion, excluding excise taxes.

Posted by on July 21st, 2011 at 9:46 am


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