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.
Guidance
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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