Reynolds, Newport Continue to Post Strong Sales

Source from:  Winston-Salem Journal 11/13/2015

Traditional cigarette manufacturers, led by R.J. Reynolds Tobacco Co., continue to benefit from smokers having more disposable income because of lower energy and gas prices, a leading tobacco analyst said Wednesday.

Wells Fargo Securities analyst Bonnie Herzog reviews Nielsen tobacco industry data, which indicated that as of Oct. 31 traditional cigarette sales were up 2.9 percent over the past reporting period in September.

However, sales were up just 0.1 percent year over year.

The main factor remains Philip Morris USA and Reynolds being able to pass along an average 4 percent price increase to adult consumers. Cigarette volume was down 1.1 percent.

"The stronger tobacco consumer continues to favorably impact the category as consumers up-trade to premium brands," Herzog said, such as Camel, Newport and Marlboro from discount brands.

Reynolds again was the industry leader in sales growth at 3.6 percent year over year, with Newport sales jumping 6.3 percent.

Herzog said Reynolds's $29.25 billion deal for Lorillard Inc, essentially to acquire top-selling menthol brand Newport, is benefiting the manufacturer even before it introduces new line extensions, stepped-up advertising and a strong promotional push. Reynolds completed the megadeal June 12 and took ownership of Newport on June 15.

Newport represents about 37 percent of Reynolds sales, along with Camel at 26 percent. Camel sales were up 1.9 percent overall.

Philip Morris USA sales were up 2.8 percent overall, including a 2 percent increase by Marlboro.

However, Herzog warned that ITG Brands of Greensboro, the U.S. subsidiary of Imperial Tobacco Group Plc, continues to struggle with gaining traction with the four traditional cigarette brands - Kool, Maverick, Salem and Winston - Imperial acquired in June for $7.1 billion.

Sales were down 5.1 percent year over year and down 1.9 percent from September. Winston sales were off 0.7 percent.

Herzog said Reynolds should benefit from Monday's ending of a six-month agreement with ITG Brands related to its every-day-low-price program. Retailers that elect to participate must agree that Pall Mall is the lowest-priced cigarette in their stores. Retailers receive greater promotional allowances across many of Reynolds' brands.

Herzog said overall electronic cigarette sales dropped 25.3 percent year over year, including an overall 8.3 percent decline in pricing.

Herzog focuses on e-cigs, also known as ciga-likes, rather than vaporizers, which typically are lower in price and mostly sold in tobacco and vapor shops. Vaporizers have been harder to track for revenue and usage data.

Reynolds' Vuse e-cig remains the top seller in the mass channel and convenience store marketplace with a 35.8 percent market share. ITG Brands' blu eCigs was second at 22.9 percent, followed by Logic at 14.5 percent, MarkTen of Philip Morris USA subsidiary NuMark at 6.1 percent and NJoy at 4.3 percent. Enditem