Reynolds American Q3 Profit Up 9%, Results Match View; Tightens Outlook

(RTTNews) - Tobacco company Reynolds American, Inc. (RAI) on Tuesday reported a 9 percent increase in profit for the third quarter from last year, reflecting higher cigarette and moist-snuff pricing as well as improved operating margins. Both revenue and adjusted earnings per share matched analysts' expectations. Looking ahead, the company tightened its adjusted earnings forecast for fiscal 2013.

Daniel Delen, president and CEO of Reynolds American, said, "Strong performance by Reynolds American's reportable business segments in the third quarter once again drove gains in both margins and earnings. Our companies continued to make significant investments in equity-building initiatives on their key brands and in the expansion of VUSE digital vapor cigarettes for long-term sustainable growth."

The Winston-Salem, North Carolina-based maker of Camel cigarettes and Grizzly smokeless tobacco reported net income for the third quarter of $457 million or $0.84 per share, up from $420 million or $0.74 per share in the prior-year quarter.

The latest quarter's results include a charge of $0.02 per share for Engle progeny lawsuits and other tobacco-related litigation, as well as implementation costs.

Excluding these items, adjusted net income for the latest quarter was $468 million or $0.86 per share, compared to $448 million or $0.79 per share in the year-ago quarter. On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.86 per share for the quarter. Analysts' estimates typically exclude special items.

The company noted that adjusted earnings for the quarter benefited from higher cigarette and moist-snuff pricing as well as lower MSA expenses.

Net sales for the quarter edged up 0.9 percent to $2.14 billion from $2.12 billion in the year-ago period and matched analysts' consensus revenue estimate of $2.14 billion.

Adjusted operating margin for the quarter rose 1.7 percentage points from the prior-year quarter to 37.8 percent.

According to the company, a highlight of the quarter was R.J. Reynolds Vapor Company's expansion of VUSE digital vapor cigarettes to Colorado in July.

The company's R.J. Reynolds Tobacco segment generated sales of $1.74 billion in the quarter, down from $1.77 billion in the same period last year. Shipments declined 4.3 percent, and cigarette market share decreased 0.5 percentage points to 26 percent.

Among its brands, Camel market share was up 0.4 percentage points at 8.9 percent, and Pall Mall market share rose 0.3 percentage points to 8.9 percent.

American Snuff sales grew to $185 million from $174 million last year. Moist-snuff volume increased 7.1 percent, and moist-snuff market share increased 1.2 percentage points to 33.4 percent. Grizzly shipment volume also grew 8.3 percent, while market share increased 1.6 percentage points to 30.4 percent.

Santa Fe sales increased to $160 million from $125 million in the year-ago quarter. Natural American Spirit super-premium brand volume jumped by 21.7 percent, and market share edged up 0.3 percentage points to 1.5 percent.

Looking ahead to fiscal 2013, Reynolds American tightened its adjusted earnings guidance to a range of $3.17 to $3.27 per share from the prior range of $3.15 to $3.30 per share. Street is currently looking for full-year earnings of $3.23 per share.

RAI closed Monday's trading at $50.81, up $0.22 on a volume of 2.26 million shares.