Earnings Preview: Reynolds American Inc.

Source from:  AP 04/28/2009

Reynolds American Inc. reports its first-quarter results on Wednesday. The following is a summary of key developments and analyst opinion related to the period. OVERVIEW: The nation's second-biggest cigarette company behind Philip Morris USA has brands that include Camel, Pall Mall and Natural American Spirit. Reynolds, based in Winston-Salem, N.C., also owns Conwood Co., the smokeless tobacco company that makes Kodiak and Grizzly brands. Reynolds competitor Altria Group Inc. was the first to report the first-quarter impact of retailers and wholesalers cutting their orders ahead of a one-time federal tax on their inventory. Altria's Philip Morris USA reported April 22 that, even though cigarette volume declined, its quarterly revenue rose on higher prices and cigar sales. BY THE NUMBERS: Analysts surveyed by Thomson Financial, on average, expect Reynolds to post a profit of 95 cents per share for the first quarter. Revenue is projected at $1.97 billion. ANALYST TAKE: Deutsche Bank North America analyst Marc Greenberg said Reynolds continues to lose volume. And its first-quarter results should show a short-term impact from the single largest federal tobacco tax increase ever, because many tobacco wholesalers and retailers tried to limit their inventory temporarily in preparation for paying a "floor" tax of 62 cents per pack on what they owned on April 1. But Greenberg said Reynolds American's first-quarter earnings will benefit from higher prices. Impacts on volume, he said, will be more pronounced on smaller brands than on its Camel brand and other top names. Citi Investment Research analyst Adam Spielman said retailers and wholesalers may have reduced inventory more aggressively on Reynolds American's mid-price brands. WHAT'S AHEAD: Reynolds has given no firm outlook for 2009. Analysts expect a positive full-year outlook for the industry, based on higher pricing, lower-than-expected volume declines in cigarettes and growth in the smokeless tobacco category. The entire industry also is awaiting word on legislation to give the U.S. Food and Drug Administration the authority to regulate tobacco. The House has approved it, and the Senate could take up a version of the bill this month. STOCK PERFORMANCE: During the quarter ended March 31, shares of Reynolds fell about 11.3 percent to end the period at $35.84. Over the last 52 weeks, the stock has traded between $31.55 and $60.64. Enditem