Reynolds Board Agrees to Raise Quarterly Dividend, Renew Share-Repurchase Program

Source from:  Winston-Salem Journal 07/27/2016

Reynolds American Inc.'s faith in its financial improvement and stability in the year since buying Lorillard Inc. for $29.25 billion has led it to reopen the door to shareholder rewards.

The company's board of directors approved Tuesday a return to an overall dividend payout program representing 80 percent of adjusted net income. The company lowered the payout to 75 percent following the June 2015 closure of the megadeal, essentially to acquire top-selling menthol cigarette Newport.

The adjustment raises the quarterly dividend to 46 cents a share. The next dividend is payable Oct. 3 to shareholders registered as of Sept. 12.

Reynolds tightened its fiscal 2016 adjusted earnings guidance range, lowering the upper end by 1 cent to $2.34 a share, while raising the lower end by 1 cent to $2.26. By comparison, adjusted earnings were $1.98 for fiscal 2015.

"The achievements by our operating companies through the first half of 2016 have significantly strengthened Reynolds American," said Susan Cameron, the company's chief executive.

Stephen Pope, managing partner of business analysis firm Spotlight Ideas of London, said Reynolds would provide "a grand return" to shareholders if it hits the higher end of the adjusted earning guidance.

The board approved a share-repurchase program of up to $2 billion. The company had put repurchases on hold as part of controlling expenses following the Lorillard purchase.

A company typically buys back its shares from the marketplace to reduce the number of outstanding shares. Because there are fewer outstanding shares, those remaining can become more valuable. Companies also buy back shares when they believe the shares are undervalued.

The 52-week share price range is $35.70 to $54.48.

Goldman Sachs analyst Judy Hong called the revival of the share repurchase program a "positive surprise" reflecting "Reynolds' improving capital allocation potential."

The company announced - as expected - the completion of the transfer of Newport production from ITG Brands LLC facilities in Greensboro to Reynolds facilities in Tobaccoville.

"Completing this complex integration six months ahead of schedule is a major achievement, and positions the company well to capture the savings associated with R.J. Reynolds' more efficient manufacturing process," Cameron said.

The integration completion triggers a "game changer" incentive for management - minus Cameron - and employees in the form of a one-time, performance-based cash award. The board set an 18-month incentive period that began July 1, 2015, and was scheduled to go through Dec. 31, 2016.

The award payout is scheduled to be made by March 15. Spokeswoman Jane Seccombe said Tuesday the payout is "based on performance through the end (of 2016) and will be evaluated and paid sometime thereafter."

Cameron provided an update on her remaining time as chief executive.

On April 26, she disclosed her intentions to depart from the company for a second time, largely because her two-year contract could have expired May 1, 2016. The contract was extended by a year by mutual consent.

Reynolds has said part of the timing of Cameron's departure would be based on "seeing through the full integration of the Newport brand … and complete the succession planning process that we have under way."

With the first part done, Cameron was asked by analysts about the succession planning. Cameron said the board "is very satisfied with the process and extended me through (April 30, 2017)."

Cameron, 57, took over as Reynolds' top executive in July 2004. She retired as Reynolds' chairwoman in December 2010 and as its chief executive and president in February 2011, at which time Daan Delen assumed both roles. Cameron stepped down to spend more time with her husband and family, and on philanthropic efforts.

She returned as Reynolds' top executive May 1, 2014, with the specific goal of bringing Newport into the company's brand portfolio.

Reynolds has had no formal comment about which executive is in line to replace Cameron. Two internal candidates have been promoted to key roles in the past 17 months.

Andrew Gilchrist, 44, became chief financial officer March 1, 2015.

On Oct. 1, R.J. Reynolds Tobacco Co. expanded the responsibilities of its president, Debra Crew, 46, by adding chief operating officer to her duties. Enditem