Cigarette maker Reynolds American’s 2Q net income falls 9.5 pct with cost of plant closings

Cigarette maker Reynolds American 2Q profit falls

RICHMOND, Va. — The cost of closing factories and changing its sales force helped send cigarette maker Reynolds American Inc.’s second-quarter net income down 9.5 percent, the company said Thursday.

The nation’s second-biggest tobacco company and the maker of Camel, Pall Mall and Natural American Spirit brand cigarettes said it earned $341 million, or $1.17 per share. That’s down from $377 million, or $1.29 per share, a year earlier.

Excluding those one-time items, Reynolds American said its net income rose about 2 percent to $385 million, or $1.32 per share.

Revenue fell less than 1 percent to $2.24 billion, excluding excise taxes, as higher retail prices and cost-cutting helped offset lower cigarette volumes. Most tobacco companies around the world have been raising prices to keep profits up as the recession and declining demand cut into cigarette volumes.

Thursday’s results edged past the average forecast of analysts surveyed by Thomson Reuters for net income of $1.30 per share, excluding one-time items, on sales of $2.2 billion.

Reynolds American shares were up 31 cents, less than 1 percent, at midday Thursday, to $56.13.

The number of cigarettes the Winston-Salem, N.C., company sold fell 9.5 percent from a year earlier to 20.3 billion, though its Camel and Pall Mall brands posted volume gains of 2.7 percent and 9.7 percent respectively.

Last year’s second quarter included the period when retailers and wholesalers restocked following cuts they made to prepare for a one-time federal tax on inventory.

The company estimates that cigarette volumes fell 7.1 percent industrywide.

Reynolds American has aggressively promoted Pall Mall as longer-lasting and more affordable as smokers weather the weak economy and high unemployment. The brand gained 1.8 points of market share to end up with 7 percent of the U.S. market.

Reynolds American said second-quarter volumes of its Kodiak and Grizzly smokeless tobacco grew 3 percent.

Tobacco companies are focusing on cigarette alternatives — including snuff and chewing tobacco — for growth as tax increases, smoking bans, health concerns and social stigma make it harder to sell cigarettes.

Reynolds American’s focus remains on strengthening its key brands, improving productivity and investing in smokeless tobacco, CEO Susan M. Ivey said in a conference call with investors.

The company announced in May that it would close two cigarette plants — one in its headquarters city and another in Puerto Rico, shifting production to its largest facility in Tobaccoville, N.C., this summer. It also said it was expanding its smokeless tobacco processing and manufacturing capacity at facilities in Memphis and Clarksville, Tenn.

It also had announced in April that it would combine its cigarette and smokeless tobacco sales forces.

The company also on Thursday raised its forecast for full-year adjusted earnings to a range of $4.90 to $5.05 per share.

In comparison, Altria Group Inc., owner of the nation’s biggest cigarette company — Philip Morris USA — said Wednesday that its second-quarter net income grew 3.2 percent to $1.04 billion as its costs fell, even though it sold fewer cigarettes. It also raised its prices.

Altria’s cigarette volume fell 10.2 percent, but its top-selling Marlboro brand gained 1.6 points of market share to end up with a record 42.8 percent of the U.S. market.