R.J. Reynolds' profit up on restructuring

/ Source: The Associated Press

R.J. Reynolds Tobacco Holdings, the nation’s No. 2 cigarette maker, said Monday it more than doubled its earnings in the second quarter.

R.J. Reynolds, which manufactures the Camel, Winston and Doral brands, said it earned $151 million, or $1.77 per share, for the quarter ending June 30, compared with $70 million, or 83 cents per share, in the year-ago quarter.

Analysts surveyed by Thomson First Call had expected earnings per share of $1.24.

Sales fell about 6 percent during the quarter to $1.35 billion, but R.J. Reynolds said it benefited from previously announced cost-savings and restructuring plans.

“Our second-quarter results demonstrate our success over the past year in strengthening our business and positioning the company for future growth,” said Andrew Schindler, the executive chairman of Reynolds American Inc., the new company created by the merger completed last week with the nation’s No. 3 cigarette manufacturer, Brown & Williamson Tobacco Corp.

Reynolds Tobacco is now a wholly owned subsidiary of Reynolds American. The figures released Monday reflect Reynolds operations before the merger.

In a conference call with industry analysts, Reynolds American executives said they were just beginning to discuss plans for marketing the combined company’s stable of cigarette brands. Antitrust laws barred the companies from sharing detailed brand information until the merger was complete.

“We will consolidate marketing and sales teams within 30 days,” Reynolds American president and chief executive officer Susan Ivey said.

Brown & Williamson’s top brands include Kool, Lucky Strike and Capri.

Last year, before announcing its merger with B&W, RJR said it planned to put more emphasis on the Salem and Camel brands, while focusing less on Winston and Doral. But the merger with B&W raises new questions, as Salem and Kool compete in the same menthol cigarette marketplace.

Ivey said the two companies will leave their current brand priorities in place through the end of 2004, while working to have a new strategy in place at the start of next year.

Reynolds Tobacco’s second-quarter results benefited from a net restructuring charge adjustment of $9 million, compared to a $55 million charge in the second quarter of 2003. Revenues declined due to 6 percent drop in sales, but that was partially offset by an improved sales mix between full-price and savings brands.

R.J. Reynolds Tobacco said its total share of U.S. cigarette sales in the second quarter was 21.6 percent, down 1.2 percentage points from the second quarter of 2003.

The decline in market share was offset by gains in higher priced brands, such as Camel, which is in keeping with their strategy. Camel’s filtered style cigarettes gained 0.3 share points from the prior-year quarter; Salem has made similar gains since the brand’s relaunch in early 2003.

Last fall, RJR announced it would eliminate 2,600 jobs, about 40 percent of the company’s work force — part of an effort to trim spending by $1 billion by the end of next year. Schindler said Monday the company remains on target to meet that goal.

Schindler and other executives said the new board of directors of Reynolds American is to meet later this month, when board members will consider a proposal to keep the cash dividend paid to stockholders at the same level as it was for Reynolds Tobacco stockholders.

Reynolds Tobacco now pays a dividend of $3.80 per share per year. “Clearly we have the opportunity going forward to increase that dividend,” Schindler said.

For the first six months of the year, R.J. Reynolds earned $273 million, or $3.20 per share, compared to $141 million, or $1.67 per share, in the first half of 2003.

Reynolds American chief financial officer Dianne M. Neal said the combined company will provide earnings guidance for the second half of the year in mid-September. On its own, she said Reynolds Tobacco would have anticipated full-year earnings of between $875 million and $925 million.

Brown & Williamson is expected to add between $175 million and $200 million in operating income to the combined company in the second half of the year, Neal said.

Reynolds American should receive cost savings of between $50 million and $100 million this year related to the merger, with a projected total of $550 million and $600 million within two years, the new company said.

“Our new company is financially and operationally stronger, our operating companies are well-positioned to compete effectively in the marketplace,” Ivey said.