2012 Second-quarter Earnings Preview: Reynolds American Inc.

Source from:  CBSNews 07/24/2012

Reynolds American Inc., the second-biggest U.S. cigarette company, should give investors some insight into its premium Camel brand and its value-priced Pall Mall brand when it releases its second-quarter results before the stock markets open Tuesday. Americans are buying fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma. WHAT TO WATCH FOR: Most tobacco companies have raised prices and cut costs to bolster profits as declining demand cuts into cigarette sales. In addition, Winston-Salem, N.C.-based Reynolds has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. Reynolds has said that half the people who try the brand continue using it. Pall Mall's U.S. retail market share remained stable at 8.5 percent in the first quarter despite a 5 percent decline in the number of the brand's cigarettes it sold. The company said heavy promotional activity by its competitors drove its cigarette volumes down about 6 percent to 16.3 billion cigarettes in the first quarter and hurt Pall Mall's momentum. Reynolds estimated a total industry cigarette volume decline of 4 percent in the period. Meanwhile Camel's market share grew slightly to 8.4 percent of the market as its sold 4.4 percent more Camels in the first quarter. Reynolds American also sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco. Analysts pay close attention to the company's smokeless tobacco products — a segment of the tobacco industry that's growing and becoming increasingly competitive as companies fight the decline in cigarette sales. Volume for its smokeless tobacco brands rose nearly 8 percent in the first quarter compared with a year ago. Its share of the U.S. retail market grew 1.9 percentage points to 32.2 percent. WHY IT MATTERS: Reynolds American's results will help reveal key tobacco industry trends in the U.S. 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 if volumes of premium brands like Camel are rebounding, that 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 earnings of 76 cents per share on revenue of $2.24 billion, according to FactSet. LAST YEAR'S QUARTER: Reynolds American reported adjusted earnings of 67 cents per share. Its revenue was $2.27 billion, excluding excise taxes. Enditem