LOS ANGELES -- Reynolds American Inc. finished out 2015 with a bang: the Winston-Salem, N.C.-based manufacturer saw its domestic cigarette volumes jump 33.6% in the fourth quarter (vs. fourth-quarter 2014) thanks to the addition of the Newport brand.
As reported on Investor’s Business Daily, overall industry cigarette volumes fell 0.5% during that quarter. In a post-earnings conference call, Reynolds CEO Susan Cameron said the strong showing “was largely the result of Newport’s growth” after the top-selling menthol brand was added to Reynolds’ retail contracts in mid-November.
Here are three trends Investor’s Business Daily picked out from Reynolds’ strong fourth-quarter showing:
1. Consumers are trading up: Stifel Nicolaus analysts described the last 18 months the cigarette industry’s new “Golden Age,” noting that somewhat higher than usual price increases last year helped boost profits. Reynolds’ reported industry volumes to be down just 0.1% for 2015, compared to an average decline of 3% to 4% in previous years.
Reynolds’ chief financial officer Andrew Gilchrist told the newspaper that an improved economic environment from lower gas prices and increasing wages has led to this “Golden Age,” especially when it comes to premium brands like Newport, Camel and Natural American Spirit.
While the Stifel analysts anticipate 2016 may not produce the same kind of robust growth as 2015, there are several positive industry trends like light litigation and regulatory activity, modest excise tax increases, and “a core consumer that seems to be on the mend and improving again in 2016.”
2. Camel, Pall Mall are holding steady: Reynolds reported Camel’s retail market share was flat in 2015 (at 8%), while Pall Mall was down 0.3% vs. 2014 (at 7.8%). Given that Camel, Pall Mall and Newport account for 92% of Reynolds’ total market share, steady performances from these core growth brands was likely welcome news.
3. Newport shines: The most welcome news, however, was Newport’s continued growth under Reynolds’ ownership. In fourth-quarter 2015, the menthol brand grew its market share 0.6% vs. fourth-quarter 2014 (to a 13.6% share) and grew volume by 4.8%.
“(Newport) has a strong and very loyal menthol franchise in the U.S.,” said Gilchrist.
Analysts anticipate that Newport will continue to shine under Reynolds’ ownership.
“The (Newport) brand should continue to benefit from improved visibility across Reynolds’ retail footprint as well as its inclusion in Reynolds’ retail contracts,” Morgan Stanley analyst Matthew Grainger wrote in a recent report. “Newport has been realizing broad-based share gains across both menthol and non-menthol styles, which should drive its long-term growth potential.”
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