Newport Brand Pushes Reynolds Growth

Source from:  Winston-Salem Journal 03/11/2016

Reynolds American Inc. continues to benefit broadly from its Newport acquisition, with three of its four top brands showing solid sales growth, according to Nielsen data as of Feb. 27.

Bonnie Herzog, an analyst with Wells Fargo Securities, said Reynolds overall had a 4 percent increase in traditional cigarette sales in February, as compared with 2.4 percent for the industry as a whole.

As it has ever since Reynolds acquired the top-selling menthol brand in the $29.25 billion deal for Lorillard Inc., Newport had the largest sales increase of all top brands at 5.5 percent. Camel sales rose 3.3 percent, while super-premium brand Natural American Spirit jumped 22.9 percent.

The data found price increases represented the bulk of the sales growth.

In November, the Big Three tobacco manufacturers raised the list price on traditional cigarettes by 7 cents a pack for the third consecutive round. The list price is what wholesalers pay manufacturers for their products. The increases typically are passed on to customers.

The February data reflects the second full month of sales related to Reynolds adding Newport to its every-day-low-price promotion.

The program is a voluntary retailer contract that provides pricing discounts to retailers of up to $4 a carton, or 40 cents a pack, off Reynolds' best-selling brands. In order to get the discount, retailers must agree that Reynolds' Pall Mall is the lowest-priced cigarette in their stores.

The current participation rate is 60 percent. Herzog projects Reynolds could reach 75 percent participation.

Before Reynolds acquired Newport, the main leverage it had for getting participation was Camel, the No. 3 brand with an 8 percent market share as of Dec. 31. Pall Mall is at 7.8 percent. By comparison, Newport's market share is 13.6 percent. Reynolds overall has a 31.8 percent market share.

Herzog projects Newport sales to exceed at least 14 percent market share as Reynolds introduces new line extensions, stepped-up advertising and a strong promotional push.

Philip Morris USA's sales rose 2.1 percent during the period, with top-selling Marlboro up 3 percent. Marlboro's market share is 47.1 percent.

Herzog warned that ITG Brands LLC continues to struggle with gaining traction with the four traditional cigarette brands — Kool, Maverick, Salem and Winston — that parent company Imperial Brands PLC spent $7.1 billion to buy from Reynolds and Lorillard. ITG Brands' main operations are in Greensboro.

Sales were down 5.9 percent during the four-week period. ITG's market share was at 7.2 percent, down from 10 percent when it gained the brands. Winston's market share was unchanged at 2 percent.
Herzog said it appears Newport is gaining from lower ITG sales.

Declines in electronic cigarettes sales continued during February, down 11.5 percent over the previous 12 weeks.

The Nielsen data tracks the mass channel and convenience store marketplace. Herzog focuses on e-cigarettes, also known as cig-a-likes, rather than vaporizers, which typically are lower in price and mostly sold in tobacco and vapor shops where Nielsen has limited tracking.

After debuting nationally in June 2014, Vuse quickly became the top selling e-cigarette. It had a 38.7 percent market share, down from 37.9 percent on Dec. 26.

ITG's blu eCigs was second at 19.8 percent, followed by Logic at 14.2 percent, MarkTen of Philip Morris USA subsidiary NuMark at 6.9 percent and NJoy at 3.9 percent. Enditem