RAI to Cut Workforce by 10%

Aims to maintain “growth trajectory” of four key brands

Steve Holtz, Editor in Chief, CSP Daily News

WINSTON-SALEM, N.C. -- Following the completion of a three-month business analysis, Reynolds American Inc. (RAI), the second-largest U.S. tobacco company, announced plans to eliminate 10% of its U.S. workforce, or about 540 jobs, in the next three years as demand for cigarettes slumps.

The analysis was designed to identify resources to reinvest in the businesses to sustain their growth momentum.

“Our businesses’ four key brands are all on a growth trajectory,” said Daniel M. Delen, Reynolds American’s president and CEO. “In order to sustain that growth, we need to ensure we have the financial resources and employees aligned behind the right programs and processes. While this analysis was difficult because of the impact on jobs, we are pleased that the majority of people leaving the companies will be doing so on a voluntary basis.”

RAI spokesperson David Howard told CSP Daily News a majority of the job cuts will come from salaried positions at the company’s Winston-Salem, N.C., headquarters and hourly positions in operations/manufacturing.

“Trade marketing was not part of the scope of this business analysis,” he said. “Retailers will likely not be seeing new faces from RJRT.”

The company said it expects to generate savings of about $25 million associated with the workforce restructuring by year-end 2012. Those savings will increase to about $70 million annually in 2015.

Tobacco-company analyst Christina McGlone of Deutsche Bank noted in a research report yesterday, “The company is not detailing how much [of this money] will fall to the bottom line. We expect the majority, supporting our projection for ongoing margin expansion. But at least some will be reinvested behind innovation and promotion, given RAI’s lagging cigarette share.

According to RAI, severance, benefits and related costs associated with the workforce reduction will be about $110 million.

“We are committed to a long-term, highly successful future for RAI and its operating companies, Delen said. “Our industry is in transition, and in order for us to maintain our momentum, we must have the flexibility to move quickly when marketplace opportunities present themselves.”

Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Co., American Snuff Co. LLC, Santa Fe Natural Tobacco Co. Inc. and Niconovum AB.

R.J. Reynolds Tobacco Co. is the second-largest U.S. tobacco company. The company’s brands include Camel, Pall Mall, Winston, Kool, Doral and Salem.

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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