Reynolds American Earnings Preview

From the 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 third-quarter results before the stock markets open Thursday.

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. Most tobacco companies have raised prices and cut costs to bolster profits as declining demand cuts into cigarette sales.

Pall Mall’s second-quarter volume grew 15 percent, and its share of the U.S. market increased 1.5 percentage points to 8.5 percent. Camel volume fell 3 percent during the quarter, and its share of the cigarette market remained stable 7.8 percent. But the company’s other brands are dragging down overall volume, which fell 4.4 percent in the third quarter.

Complicating cigarette shipments, the nation’s largest tobacco companies also cautioned last quarter that third-quarter cigarette volume comparisons will be hurt because wholesalers stocked up more than usual in that period last year.

Reynolds American also sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.

Analysts pay close attention to 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’ smokeless volumes grew 3.6 percent last quarter, and its market share grew 1.5 points to 31.3 percent of the U.S. market.

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 earnings of 73 cents per share on revenue of $2.16 billion, according to FactSet.

LAST YEAR’S QUARTER: Reynolds American reported earnings of 65 cents per share. Its revenue was $2.24 billion, excluding excise taxes.

Posted by on October 22nd, 2011 at 1:59 pm


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