Natural American Spirit Bosted Santa Fe''s Robust 4Q15 Results

Source from:  Market Realist 02/22/2016

Reynolds American's (RAI) Santa Fe subsidiary saw an increase in its 4Q15 revenue by 19.9% to $0.21 billion in 4Q15 compared to $0.18 billion in 4Q14. The increase was primarily due to higher pricing and strong volume growth. Santa Fe's operating income rose 24.4% to $0.11 billion in 4Q15.

The adjusted operating income also rose 22.9% to $0.11 billion. The increase was driven by higher volume growth of Natural American Spirit brand. The brand offers natural additive-free tobacco including products made with organic tobacco. As a result, Santa Fe's products are priced higher than other cigarette brands like Lucky Strike, which is an additive-free tobacco cigarette by British American Tobacco (BTI).

Peer group comparison

Other tobacco companies like Vector Group (VGR) and Altria Group (MO) do not produce additive-free tobacco cigarettes. However,　in an attempt to meet demand for innovative products,　Philip Morris International (PM) produces reduced-risk tobacco products (or RRPs). To learn more about Philip Morris's reduced-risk products, please read Philip Morris's Innovative Products in the Reduced-Risk Tobacco Market .

Natural American Spirit's retail market share rose 0.3 percentage points to 2% in 4Q15 in the US on volume growth of 18.4%.

Growth trajectory

The company plans to expand beyond its traditionally strong presence in Western US markets. Apart from expanding in the US, RAI is focused on international expansion with its Natural American Spirit brand. As a result, RAI sold Natural American Spirit brand's international rights to Japan Tobacco (JAPAY) (JAPAF) for $5 billion on September 29.

This collaboration will accelerate RAI's growth trajectory. It will also benefit Japan Tobacco's overseas growth, which will help the company to offset shrinking cigarette demand in Japan. To learn more about the deal, please read, Japan Tobacco Confirms Acquisition of Santa Fe Assets .

RAI makes up 3.4% of the SuperDividend U.S. ETF (DIV). Enditem