Reynolds American Misses Estimates - Analyst Blog


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Reynolds American Inc. ( RAI ) delivered adjusted earnings of 63 cents in the first-quarter of fiscal year 2012. The results missed the Zacks Consensus Estimate of 65 cents per share.

The adjusted quarterly result slipped the prior-year period results by 1.6%. The advantage gained by higher pricing and improved productivity was offset by the decline in cigarette volume.

The first quarter 2012 results exclude restructuring charge of 16 cents per share related to the completion of the comprehensive business analysis. Including the special items, first quarter earnings declined 27.7% year over year to 47 cents per share.

Revenues and Operating Margin

Reynolds' net sales in the reported quarter slipped 2.9% year over year to $1,933.0 million from $1,991.0 million a year ago. Quarterly net sales also missed the Zacks Consensus Estimate of $1,969 million.

Adjusted operating income increased marginally by 0.2% to $636 million from $635 million a year ago. The company's adjusted operating margin increased 1 percentage point year over year to 32.9%.

Segment Details

R.J. Reynolds: Segment revenue came down to $1,631.0 million in the first-quarter from $1,700.0 million in the previous year.

R.J. Reynolds' total first-quarter market share, excluding private label brands, was down 1.2 percentage points to 26.8%.

Compared with the year-ago quarter, the segment's adjusted operating income slipped 0.3% from the prior-year quarter to $516.0 million, with higher pricing and productivity improvements offsetting cigarette volume declines. Adjusted operating margin expanded 1.2 basis points to 31.6% on the back of improved product mix, higher pricing and productivity improvements.

American Snuff: Revenues in this segment declined to $158.0 million in the first quarter from $167.0 million a year ago.

American Snuff's first-quarter moist-snuff retail market share increased 1.9 percentage points from the prior-year quarter, to 32.2%.

First-quarter adjusted operating income declined 3.8% to $84 million, driven by the impact of the sale of Lane, Ltd in February 2011, which contributed about $5 million to operating income in the prior-year quarter. Operating margin increased 0.7 percentage points from the adjusted prior-year quarter, to 53.2%.

Santa Fe : Revenues in this segment increased to $100.0 million in the first quarter from $92.0 million a year ago.

Santa Fe's super-premium brand, Natural American Spirit, increased its market share by 20 basis points year over year to 1.1%.

The company's first-quarter operating income increased 6.3% to $45.0 million, while operating margin was down 1.0 percentage points year over year at 45.0%.

Financial Update and Dividend Increase

Reynolds American ended the quarter with cash and cash equivalents of $2,396.0 million compared to $1,956.0 million in the previous quarter. Long-term debt stood at $3,200.0 million compared to $3,206.0 million in fourth quarter 2011. Shareholders' equity amounted to $6,028 million compared to $6,251.0 million a quarter ago.

Reynolds' repurchased 6.3 million shares for $261 million in the first quarter, bringing total repurchases to 13.1 million shares for $537 million. This is part of the $2.5 billion share repurchase program initiated late last year.


The North Carolina-based manufacturer and distributor of cigarette and other tobacco products reaffirmed its fiscal 2012 adjusted earnings guidance in the range of $2.91 to $3.01 per share. The current Zacks Consensus Estimate of $2.96 is within the guidance range.

Our Take

The company's commitment to build and maintain a portfolio of profitable brands and its marketing programs, designed to strengthen brand image, build brand awareness and loyalty and shift adult smokers of competing brands to RJR Tobacco, encourage us. The company faces stiff competition from Lorillard Inc. ( LO ) and Altria Group Inc. ( MO ) along with increases in the federal tobacco tax and declining retail market share.

Reynolds currently holds a short-term Zacks #4 Rank (Sell). On a long-term basis, we maintain an Outperform rating.

LORILLARD CO ( LO ): Free Stock Analysis Report
ALTRIA GROUP ( MO ): Free Stock Analysis Report
REYNOLDS AMER ( RAI ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: LO , MO , RAI

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