Reynolds American 1Q Profit Falls 29% On Charges
04/24/2012 | 09:41am
--Reynolds and rivals face difficult operating environment as cigarette volumes have been declining for years
--Major players have responded by enacting price hikes and cutting costs the help boost profitability
--Latest results aided by growth for smokeless tobacco
(Updates throughout with additional background, analyst commentary and the latest stock quote.)
By John Kell
Reynolds American Inc.'s (>> Reynolds American, Inc.) first-quarter earnings fell 29% as the tobacco company booked restructuring-related charges and as cigarette sales volume dropped more than the broader industry.
Reynolds American and rival tobacco firms face a difficult operating environment as cigarette volumes have been declining for years and a weak economy and high unemployment continue to pressure consumer disposable income.
The major players have responded by enacting price hikes and cutting costs to help bolster profitability. Reynolds American last month said it would cut its U.S. work force by about 10% by the end of 2014, echoing a cost-cutting move by Altria Group Inc. (>> Altria Group, Inc.). Those job cuts were part of a comprehensive review of the company's business, as Reynolds American sought to get operations in line with the current business landscape.
Cigarette volume for the nation's second-largest tobacco company behind Altria, excluding private-label brands, dropped 5.1% in 2011 from the prior year, compared with an overall industry decline of 3.5%. The company has shifted its focus on key brands and has also diversified into smokeless tobacco and dissolvables in an effort to seek broader appeal.
In the first quarter, Reynolds American's cigarette volume, excluding private-label brands, slid 5.6%. That was worse than the industrywide 4% decline as the company was hurt by high levels of promotional pricing and lower wholesale inventories.
On a positive note, total volume at American Snuff, the smokeless tobacco unit that makes Grizzly and Kodiak moist snuff, was up 7.6% and outpaced the industry's increase of about 5%.
Reynolds American reported a profit of $270 million, or 47 cents a share, down from $381 million, or 65 cents a share, a year earlier. Excluding restructuring-related costs and other items, earnings were down at 63 cents from 64 cents. Revenue decreased 2.9% to $1.93 billion.
MY chart plots return since 1999 and shows RAI close to +500% (and that's not including dividends way higher than CD's paid over that timeframe) versus a negative return for CIGX.
Nice try, but you know the house always wins in the long run haha.
Nope, I am not interested in CIGX at all. Got my eye on BTI though... they had a pretty big pullback recently.
Yeah, you're right. The chart shows RAI up 27% over the last 5 years and CIGX up only 283%. Making 5% per year with a little dividend sprinkled in is definitely the way to go. I'm sure most would take that over 57% per year. House sure is winning.
Keep your eyes on both of these for the rest of the year. Some interesting developments will be taking place affecting both. Good luck on that slow and steady approach. It is beating a 5 year CD rate, though not by a whole lot.
(Good natured ribbing if you can take it) Seriously though, keep an eye on both.
It's business as usual at RAI. Buy on the dip (if you're really really lucky 39).
Quoting Management: “RAI and its operating companies demonstrated underlying strength and resilience in a challenging first quarter, and we remain on track to deliver full-year adjusted EPS growth in the mid- to high-single digits,” said Daniel M. Delen, president and chief executive officer. “Our operating companies continue to focus on balancing market share and profitability, and their broad range of tobacco products at different price points offers a distinct advantage in this highly competitive environment.”