US: Sales of Camel, Pall Mall Key As Reynolds American Reports 3Q Earns Tuesday

Source from:  The Republic 10/29/2013

Reynolds American Inc., the second-biggest U.S. cigarette company, should give investors some insight into its premium Camel brand and its lower-priced Pall Mall brand when it releases its third-quarter results before the stock markets open Tuesday.

WHAT TO WATCH FOR: Americans are buying fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma, prompting most tobacco companies to raise prices and cut costs to bolster profits. The decline in cigarette volumes industrywide also has led to heavy promotional activity by the nation's largest tobacco companies.

Winston-Salem, North Carolina-based Reynolds American said last quarter that the ongoing weak economy, high unemployment and higher retail prices continue to impact consumers' wallets and drive down demand for cigarettes. Executives also noted that growth in traditional smokeless tobacco products and new products like electronic cigarettes are hurting cigarette sales.

The number of cigarettes sold by its R.J. Reynolds Tobacco subsidiary fell 6 percent during the second quarter to 17 billion cigarettes, on par with its estimate for the total industry decline.

Volumes for Camel and Pall Mall both fell less than one percent. The brands account for more than 60 percent of its total cigarette volume.

Camel's market share increased 0.4 percentage points to 8.7 percent of the U.S. market, while Pall Mall's market share grew 0.5 percentage points to 8.9 percent.

The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it.

Analysts also 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 that include Grizzly and Kodiak rose more than 9 percent in the second quarter compared with a year ago. The brands had a 33 percent share of the U.S. retail market, which is tiny compared with cigarettes.

Reynolds American also launched a revamped version of its Vuse-brand electronic cigarette in Colorado in July, with its sights set on expanding nationally. The company also is moving ahead with its nicotine gum under the Zonnic brand, which is meant to help people stop smoking.

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 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. Progress on cigarette alternatives could illustrate a greater interest in smokers looking to quit or find other products to use in places they cannot smoke.

WHAT'S EXPECTED: Analysts, on average, expect Reynolds American to report earnings of 86 cents per share on revenue of $2.14 billion, according to FactSet.

LAST YEAR'S QUARTER: Reynolds American reported adjusted earnings of 79 cents per share and revenue of $2.12 billion. Figures for both periods exclude excise taxes the company passes through to the government. Enditem