Reynolds' Sales Decimated by Tax Increase

Source from:  Tobacco Reporter 05/04/2009

R. J. Reynolds' domestic cigarette sales during the first quarter of 2009, at 18.7 billion, were down by 10.5 per cent on those of the first quarter of 2008, a decline that reflected significant trade inventory reductions ahead of a federal cigarette tax hike on April 1. Sales of growth brands were up by 0.3 per cent to 6.9 billion, with sales of Pall Mall increased by 17.7 per cent to 1.9 billion, more than offsetting a 5.0 per cent fall in sales of Camel. Sales of support brands were down by 14.0 per cent to 9.7 billion, while sales of non-support brands were down by 23.1 per cent to 2.1 billion. Premium cigarette sales were down by 11.2 per cent to 11.7 billion, while value-brand sales were down by 9.1 per cent to 7.0 billion. Reynolds reported, meanwhile that total US industry cigarette sales were down by 10.4 per cent to 72.0 billion, with premium sales down 12.5 per cent to 51.5 billion and value-brand sales down 4.9 per cent to 20.5 billion. Over the three months to the end of March, Reynolds' share of the domestic US market was said to be down by 0.7 of a percentage point to 27.7 per cent. Camel's share was up by 0.1 percentage points to 7.6 per cent while Pall Mall's share was up 0.6 percentage points to 2.9 per cent. Conwood's sales of moist snuff rose by 0.7 per cent to 76.4 million cans during the first quarter, with sales of value-brands rising by 4.9 per cent to 65.3 million cans but sales of premium brands falling by 18.4 per cent to 11.2 million. Sales of the premium Kodiak brand were down by 18.5 per cent to 10.7 million cans, while sales of the value brand, Grizzly, were up by 5.2 per cent to 65.0 million. Conwood's share of the total domestic moist snuff market was said to be up by 2.0 percentage points to 28.8 per cent, with Grizzly's share alone, at 24.7 per cent, up 2.6 percentage points. Reynolds American Inc yesterday reported first quarter results with net sales down 6.6 per cent to $1,921 million. Reported operating income was down by 80.8 per cent to $97 million while adjusted operating income was up by 8.7 per cent to $550 million. Reported net income was down by 98.4 per cent to $8 million, while adjusted net income was up by 0.7 per cent to $293 million. Reported net income per diluted share was down by 98.2 per cent to $0.03, while adjusted net income per diluted share was unchanged at $1.00. Commenting on the results, RAI's CFO, Thomas R. Adams, said he was pleased with the company's performance, given the industry's first-quarter volatility in pricing and shipments. "RAI's reported EPS [earnings per share] of $0.03 included non-cash, pre-tax trademark impairment charges of $453 million, or $0.97 per share, triggered by federal tobacco-tax increases and changes in pricing," he said. "In addition to trade inventory reductions, our adjusted earnings of $1.00 per share were negatively impacted by $0.10 of increased pension expense and an additional $0.09 from non-operational factors that included lower interest income and higher expenses on some other financial items," he said. Chairman, president and CEO, Susan M. Ivey, meanwhile, said the fact that both of RAI's reportable operating segments continued to post increases in adjusted operating income highlighted the strength of the total-tobacco business model the company had established over the past several years. But she said that the changes in industry pricing dynamics, along with trade inventory reductions in response to federal excise tax increases, had made for a challenging quarter. "The unprecedented increase in federal excise taxes on tobacco products that took effect April 1 disrupted first-quarter cigarette and moist-snuff shipments," Ivey said. "As a result, there were significant reductions in wholesale and retail inventories, and that caused higher than-usual industry volume declines. "The tax increases, as well as pricing changes, also triggered trademark valuations that resulted in impairment charges on some of our companies' non-growth brands." Enditem