Reynolds American Brings Out the Knife

Reynolds American ($RAI) announced today that it will cut 10% of its U.S. workforce by the end of 2014. That sounds dramatic but a lot of it will be achieved by normal turnover.

Reynolds said this move will save $25 million this year and $70 million by 2015.

Reynolds American pegged the expected cost of the work-force reduction at about $110 million, which reflects severance payments and other costs. The company noted it will take a charge in the first quarter that will include those costs.

“Our businesses’ four key brands are all on a growth trajectory,” said Chief Executive Daniel M. Delen. “In order to sustain that growth, we need to ensure we have the financial resources and employees aligned behind the right programs and processes.”

As cigarette volumes have declined across the tobacco industry, Reynolds American, the nation’s second-largest tobacco company behind Altria Group Inc. (MO), has shifted its focus toward a few key brands. The company has also diversified into smokeless tobacco.

If the $70 million figure is accurate, we’re talking about 12 cents per share per year. That’s not so small. These cuts are certainly painful, but it’s good to see that Reynolds is staying alert to cutting costs.

Posted by on March 14th, 2012 at 9:59 am


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