Reynolds American Q3 Earnings Preview

(RTTNews) - Tobacco maker Reynolds American Inc. (RAI) will issue its third-quarter results before the bell on Tuesday, October 27, with analysts, polled by Thomson Reuters, estimating earnings of $0.55 per share on revenue of $3.14 billion.

In the previous quarter, Reynolds American reported an upsurge in profit, driven by an 11% growth in sales as well as one-time gains. Earnings for the quarter topped Wall Street estimates while sales fell short of expectations.

"Reynolds American delivered excellent results in the second quarter, in addition to successfully completing the Lorillard acquisition and related divestiture," said Reynolds CEO Susan Cameron in a statement.

Second-quarter net income was $1.93 billion or $3.38 per share, up from $492 million or $0.92 per share in the prior year. Results for the quarter included a gain of $2.57 per share gain from the divestiture to ITG Brands.

Excluding items, adjusted earnings for the latest quarter were $1.02 per share, compared with $0.89 per share last year. On average, 10 analysts polled by Thomson Reuters expected the company to report earnings of $0.97 per share for the quarter. Analysts' estimates typically exclude special items.

Reynolds' sales for the quarter increased 11% to $2.40 billion from $2.16 billion a year ago. Six analysts had a consensus revenue estimate of $2.44 billion for the quarter.

Reynolds said its domestic cigarette volume increased 5.6% in the quarter.

At its key R.J. Reynolds Tobacco unit, which includes brands like Camel and Pall Mall, cigarette shipments rose 4.4% from last year, mainly driven by the inclusion of the Newport brand. The unit's market share edged down 0.1 percentage point to 31.8% on a pro-forma basis.

Sales growth was also seen across its smaller business divisions, American Snuff and Santa Fe, the company said.

FY15 Guidance

For the fiscal year 2015, the company now expects adjusted earnings of $1.90 - $2.00 per share on a split-adjusted basis, from the prior issued range of $1.83 - $1.90 per share. Analysts are currently looking for earnings of $1.99 per share for 2015.

Reynolds said it expects to narrow the guidance range with the reporting of its third-quarter results.

Recent Happenings

September 29, Reynolds American announced the sale of international rights to the Natural American Spirit brand name and associated trademarks, along with the international companies that distribute and market the brand outside the U.S., to the Japan Tobacco Group of companies or JT Group in an all-cash transaction valued at about $5 billion.

The purchase does not include the rights to the Natural American Spirit brand name and associated trademarks in the U.S. market, U.S. duty-free locations, U.S. territories or in U.S. military outlets, which will be retained by Santa Fe Natural Tobacco Company, Inc., a wholly owned subsidiary of RAI.

The company noted that once the transaction is complete, the international rights to all of RAI's operating companies' cigarette trademarks will be owned by international tobacco companies, allowing the RAI companies to focus on brand growth in the U.S. market.

The transaction needs regulatory approval in several countries. The companies are working to win regulatory approvals by early 2016, and the transaction will close thereafter.

Late September, addressing needed efficiencies and cost effectiveness in an evolving market, operating companies of Reynolds American announced consolidation of manufacturing operations for the VUSE Digital Vapor Cigarette. As a result of the consolidation, in the third quarter Reynolds American expects to take asset impairment and exit charges of about $100 million, on a pre-tax basis.