Leading cigarette maker
Reynolds American Inc.
) delivered adjusted earnings of 76 cents (excluding a one-time
charge of 51 cents) per share in the fourth quarter of fiscal
year 2012, up 5.6% from the prior-year quarter earnings of 74
cents. The results were ahead of Zacks Consensus Estimate by 2
Benefits from improved pricing and volume gains for moist
snuff products offset decline in cigarette volumes and marketing
Revenues and Operating Margin
Reynolds' net sales in the reported quarter slipped marginally
to 0.2% year over year to $2.07 billion due to declining
cigarette volumes. However, quarterly net sales were above the
Zacks Consensus Estimate of $2.06 billion.
Governmental actions that prohibit the use of tobacco
products, along with diminishing social acceptance of smoking,
are adversely impacting Reynolds' volume.
Adjusted operating income increased 1.3% to $719 million while
adjusted operating margin contracted 0.6 percentage points to
: 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 company. It
includes popular cigarette brands like Camel, Winston, Kool,
Doral, Salem and Pall Mall. Segment revenue declined 2.6% to
$1.72 billion in the fourth quarter.
Volumes declined 6.9% in the segment compared to a 2.7%
decline for the industry. These came from losses on shipments and
increased promotional activity by competitors. RJR Tobacco's
market share declined 0.9% year over year to 26.4% in the fourth
The premium Camel brand held a market share of 8.6% in the
fourth quarter, almost flat year-over-year due to high demand of
premium menthol cigarettes. Value brand Pall Mall held a market
share of 8.9%, up 0.3 percentage point.
Compared with the year-ago quarter, the segment's adjusted
operating income declined 4.5% to $571 million, with cigarette
volume declines and increased promotional costs more than
offsetting pricing gains and productivity benefits. Adjusted
operating margin contracted 0.6 percentage points to 33.1%..
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 7.3% to $177 million in the
Volumes increased 7.2% in the segment compared to the 5%
volume gain for the moist-snuff industry. The moist snuff market
share increased 1.0 percentage point year-over-year to 32.6% in
the quarter. Grizzly brand volumes grew 8.1% while market share
expanded 1.2 percentage points to 29.2%, benefiting from the
company's investment in brand building programs.
Adjusted operating income increased 10.0% to $379 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%. Profit margins on moist snuff products
are generally higher than on cigarette products.
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 25.7%
to $65 million in the fourth quarter.
Volumes increased 13.9% in the segment. Natural American
Spirit's market share expanded 0.2 percentage points to 1.2%.
Adjusted operating income increased 37.3% to $65 million,
driven by pricing and volume gains for its super premium brand
Natural American Spirit. Adjusted operating margin increased 4.8
percentage points year-over-year to 49.4%.
Full Year Results
For the full year 2012, adjusted earnings was $2.97, up 5.7%
from the year-ago results. Earnings exceeded the Zacks Consensus
Estimate by 2 cents.
Net sales declined 2.8% to $8.3 billion due to volume declines
and anti-smoking campaigns. Sales were inline with Zacks
Other Financial Update
In the quarter, Reynolds American spent $250 million to
purchase 6 million shares under the company's $2.5 billion share
Following the third quarter results, Reynolds American issued
its fiscal 2013 adjusted earnings guidance in the range of $3.15
to $3.30 per share. The Zacks Consensus Estimate stands at $3.12
Reynolds carries Zacks Rank #3 (Hold). Other stocks of
Consumer Staples segment like
Flowers Foods Inc.
) has a Zacks Rank #1 (Strong Buy),
Procter & Gamble Company
) occupy Zacks Rank #2 (Buy) and currently doing well are also
FLOWERS FOODS (FLO): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
REYNOLDS AMER (RAI): Free Stock Analysis
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