RICHMOND, Va. -- Cigarette maker Reynolds American Inc. said Tuesday that its first-quarter profit fell 29% as restructuring charges and a decline in cigarettes sold more than offset the effect of higher prices and productivity improvements, reported the Associated Press.
The nation's second-largest tobacco company reported net income of $270 million, or 47 cents per share, for the three-month period ended March 31, down from $381 million, or 65 cents per share, a year ago.
The maker of Camel, Pall Mall and Natural American Spirit brand cigarettes said that adjusted for restructuring charges of $149 million related to a broad business analysis, it earned 63 cents per share. In the year-ago period, the company benefited from the sale of its Lane Ltd. subsidiary for $205 million in cash to Scandinavian Tobacco Group. Lane, based in Tucker, Ga., makes Kite and Bugler roll-your-own (RYO) tobacco and Captain Black pipe tobacco.
Still, its adjusted earnings for the latest period were short of the 65 cents per share expected by analysts surveyed by FactSet, said AP.
Revenue excluding excise taxes fell 3% to $1.93 billion from $1.99 billion a year ago. Analysts expected revenue of $1.98 billion.
"Clearly, the year got off to a tough start," CEO Daniel M. Delen said in a conference call with investors. "But when you look below the surface, we actually did quite well in navigating the challenges."
The Winston-Salem, N.C., company said heavy promotional activity by its competitors drove its cigarette volumes down about 6% to 16.3 billion cigarettes, compared with an estimated total industry volume decline of 4%.
Its R.J. Reynolds Tobacco subsidiary sold 4.4% more of its Camel brand, but volumes of Pall Mall fell 5%. Camel's market share grew slightly to 8.4% of the U.S. market, while Pall Mall's market share remained stable at 8.5%.
The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it. But Delen said the promotions on value-priced brands in the first quarter was "very aggressive" as companies focus on less expensive brands, hurting Pall Mall's momentum.
In a client note cited by the news agency, Citi Investment Research's Vivien Azer called the Camel gains "particularly encouraging," and Pall Mall's weakness "expected."
Reynolds American and other tobacco companies are also focusing on cigarette alternatives such as snuff and chewing tobacco for future sales growth as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher, it added.
Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose nearly 8% compared with a year ago. Its share of the U.S. retail market grew 1.9 percentage points to 32.2%.
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