Earnings Preview: Reynolds American’s 4Q

RICHMOND, Va. (AP) — Reynolds American Inc., the nation’s second-biggest cigarette company, reports its fourth-quarter and full-year results before the stock market opens Thursday.

WHAT TO WATCH FOR: Continued growth in Reynolds American’s Pall Mall brand despite industrywide declines in the number of cigarettes being as taxes, smoking bans, health concerns and social stigma all increase.

The Winston-Salem, N.C., company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. Reynolds also sells Camel and Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.

Pall Mall’s third-quarter volume grew 45.1 percent, and its share of the U.S. market increased 2.8 percentage points to 7.8 percent, even though overall the company sold 2.6 percent fewer cigarettes. Half the people who try the brand continue using it, the company said.

Camel volumes grew 1.5 percent during the third quarter, and the brand’s market share rose.

Reynolds American’s top competitor, No. 1 Altria Group Inc., parent company of Marlboro maker Philip Morris USA, said last week that raising prices and cutting costs helped its third-quarter net income climb nearly 27 percent even as it shipped fewer cigarettes.

WHY IT MATTERS: Continued strength from Pall Mall could mean smokers are still switching to cheaper brands to save money, and those who tried the brand during the recession are remaining loyal.

But a rebound in volumes of premium cigarettes brands like Camel could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes.

WHAT’S EXPECTED: Analysts expect Reynolds American to report earning 61 cents per share on revenue of $2.15 billion, according to FactSet.

LAST YEAR’S QUARTER: Reynolds American said last year that its fourth-quarter net income, excluding one-time items, was $1.10 per share on revenue of $2.1 billion.

source: The Associated Press

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