Leading cigarette maker
Reynolds American Inc.
) delivered adjusted earnings of 72 cents per share in the first
quarter of fiscal year 2013 that were ahead of Zacks Consensus
Estimate of 69 cents by 4.3%. Earnings were up 14.3% from the
Adjusted earnings per share exclude a 21 cents benefit from
2013 Master Settlement Agreement (MSA) payment credit and a 1
cent charge related to implementation costs.
Earnings were on the upswing on the back of positive pricing
and expense management business.
Revenues and Operating Margin
Reynolds' net sales in the reported quarter slipped 2.6% year
over year to $1.8 billion due to declining cigarette volumes.
Quarterly net sales also missed the Zacks Consensus Estimate of
Governmental actions that prohibit the use of tobacco
products, along with diminishing social acceptance of smoking,
are adversely impacting Reynolds' cigarette volumes.
Adjusted operating income increased 8.5% to $690 million while
adjusted operating margin inflated 3.7 percentage points to 36.0%
due to strict cost controls.
: This is Reynolds' largest operating segment, comprising
operations of R. J. Reynolds Tobacco Company, a subsidiary of
Reynolds American and the second-largest U.S. tobacco firm. It
includes popular cigarette brands like Camel, Winston, Kool,
Doral, Salem and Pall Mall. Segment revenue declined 6.2% to $1.5
billion in the first quarter.
Volumes declined 8.7% in the segment higher than a 6.2%
decline for the industry due to losses on shipments and increased
promotional activity by competitors. RJR Tobacco's market share
declined 0.6% year over year to 26.1% in the first quarter.
The premium Camel brand held a market share of 8.5% in the
fourth quarter, 0.1 percentage point higher year-over-year due to
high demand of premium menthol cigarettes. Value brand Pall Mall
held a market share of 9.0%, up 0.5 percentage point.
Compared with the year-ago quarter, the segment's adjusted
operating income climbed 9.2% to $563 million, on the back of
positive pricing and increased productivity which made up for the
volume declined. Adjusted operating margin inflated 4.4
percentage points to 36.0%.
: This segment comprises operations of American Snuff Company, a
wholly-owned subsidiary of Reynolds American and the nation's
second-largest manufacturer of smokeless tobacco products. It
sells some of the largest selling moist snuff brands like Grizzly
and Kodiak. Segment revenue increased 5.7% to $167 million in the
Volumes increased 1.1% in the segment from the prior-year
quarter. The moist snuff market share increased 0.8 percentage
point year-over-year to 33.0% in the quarter. Grizzly brand
volumes grew 2.1% while market share expanded 1.1 percentage
points to 29.8%, benefiting from the company's investment in
brand building programs.
Adjusted operating income increased 10.3% to $93 million,
driven by volume and market share gains for the popular Grizzly
brand. Adjusted operating margin increased 2.5 percentage points
year over year to 55.7% backed by moist snuff volume gain.
This segment comprises operations of Santa Fe Natural Tobacco
Company, a wholly-owned subsidiary of Reynolds American and
manufactures Natural American Spirit cigarettes and other
additive-free tobacco products. Segment revenue increased 15.0%
to $115 million in the first quarter.
Super premium brand Natural American Spirit's volume inflated
14.7% and market share expanded 0.2 percentage points to
Adjusted operating income increased 15.5% to $52 million,
driven by pricing and volume gains for its Natural American
Spirit. Adjusted operating margin increased 0.2 percentage points
year-over-year to 45.2%.
Other Financial Update
In the quarter, Reynolds American spent $300 million to
purchase 6.5 million shares under the company's $2.5 billion
share repurchase program.
Following the first quarter results, Reynolds American
reaffirmed its fiscal 2013 adjusted earnings guidance in the
range of $3.15 to $3.30 per share. The Zacks Consensus Estimate
stands at $3.20 per share.
Reynolds carries a Zacks Rank #3 (Hold).
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