Earnings Preview: Reynolds American's 3Q

Source from:  Bloomberg Businessweek 10/21/2010

Reynolds American Inc., the nation's second-biggest cigarette company, reports its third-quarter results before the stock market opens Thursday. WHAT TO WATCH FOR: Continued growth in Reynolds American's Pall Mall brand despite industrywide declines in cigarette sales volumes in the face of tax increases, smoking bans, health concerns and social stigma. The Winston-Salem, N.C., company has aggressively 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 sales are growing modestly. The brand's second-quarter volume grew 9.7 percent even as the company's overall volume fell 9.5 percent. Pall Mall gained 1.8 points of U.S. retail market share, rising to 7 percent, despite cuts in promotions. Analysts also will be looking for comment on recently announced plans for CEO Susan Ivey to retire in February. WHY IT MATTERS: Continued strength from Pall Mall could mean smokers are still switching to cheaper brands to save money because they have less discretionary income, and those who tried the brand during the recession are remaining loyal. But a rebound in volumes of premium brands like Camel could signal consumers are adjusting to higher prices on cigarettes following a federal tax hike last year, coupled with many state tax increases. WHAT'S EXPECTED: Analysts polled by Thomson Reuters expect Reynolds American to earn $1.34 per share on sales of $2.2 billion. LAST YEAR'S QUARTER: Reynolds American reported net income of $1.24 per share on revenue of $2.15 billion. Enditem