Reynolds American net income up on higher prices

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Reynolds American’s net profit increased more than 35 % in the second quarter. Higher prices and cost-cutting were the reasons for recovering of the cigarette maker after legal charges that caused the company’s poor results.

One of the largest cigarette makers as well experienced a strict drop in the number of cigarettes it sold.

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R.J. Reynolds Tobacco Company

The company based in the Winston-Salem, N.C. said that its competitors conducted heavy promotional activity and that was the reason of cigarette volume decline. The company’s cigarette volume decreased about 7 % to 18.1 billion cigarettes in comparison with an expected total industry volume drop of 1.7 %.

The cigarette maker’s subsidiary, R.J. Reynolds Tobacco, sold its Camel cigarettes at 4 % less, but, the volumes of Pall Mall declined by 3.6 %.

Camel’s market share dropped to 8.3 % of the U.S. market, and Pall Mall’s market share declined to 8.4 %.

The tobacco company has featured Pall Mall as a longer-lasting and more affordable cigarette brand. According to the Reynolds American those smokers who used these cigarettes continue smoking them.

Reynolds has experienced pressure from other tobacco companies that intend to attract smokers looking to save money.

CEO Daniel M. Delen said that there are many low-priced cigarette offers, especially from other premium brands and that is why the Pall Mall brand position has declined meaningly over time.

Reynolds informed about net profit of $443 million, or 78 cents per share, for the three-month period ended June 30. That means increase from $327 million, or 56 cents per share, a year ago when the cigarette maker had charges related to a legal case that declined its results.

Earnings, excluding excise taxes, dropped by 4 % to $2.18 billion from $2.27 billion a year ago.

Reynolds American and other cigarette makers are also concreting on cigarette alternatives such as snuff and chewing tobacco as tax increases, bans on smoking, health concerns make the cigarette business tougher.

However, in spite of the decline in cigarette volumes, the volume of smokeless tobacco brands that include Grizzly and Kodiak increased at about 11 %.

The cigarette maker as well said that it will start a test market in the Des Moines, Iowa, area of a nicotine gum under the Zonnic brand focused on helping people quit smoking.

In 2009, Reynolds acquired Niconovum AB, a Swedish company, which produces nicotine gum, pouches and spray products.

Reynolds American as well confirmed its full-year adjusted earnings forecast in the range of $2.91 and $3.01 per share. Analysts expected earnings of $2.95 per share.

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