Reynolds American 3Q profit falls 41 pct, ups view

Reynolds American Inc. said Wednesday its third-quarter profit dropped 41 percent due to hefty restructuring and trademark charges, but the results topped expectations as the tobacco company used higher prices to offset consumption declines.

Chief Executive Susan Ivey said the results prompted the maker of Camel cigarettes to raise its full-year outlook.

The quarterly results speak "to the resilience of the tobacco business even in tough economic times," Ivey told investors.

The nation's second-biggest cigarette company said net income for the three months ended Sept. 30 slid to $211 million, or 72 cents per share, from $358 million, or $1.21 per share, a year ago. Excluding one-time costs, the company earned $1.29 per share, beating analysts' average estimate of $1.19, according to a Thomson Reuters poll.

The maker of Camel, Pall Mall and Kool brands said revenue dipped 1 percent to $2.27 billion — coming in just above Wall Street's $2.25 billion forecast.

Due to the better-than-expected report, Reynolds American raised its full-year outlook. It now forecasts 2008 adjusted earnings growth in the low single digits, rather than flat results. The outlook excludes a first-quarter charge related to the termination of its European joint venture and the third-quarter restructuring and trademark impairment costs.

The company announced last month that it would cut about 570 jobs, or 10 percent of its American work force, as cigarette sellers prepare to compete more aggressively for sales of smokeless tobacco products. Reynolds owns the Conwood smokeless business.

The move comes as the tobacco industry finds ways to cope with declining cigarette sales by selling more chew, snuff, cigars and snus. Reynolds said cigarette sales volume declined 7.5 percent in the third quarter, compared to a 3.5 percent decline industry-wide in recent quarters. Those losses were partially offset by higher prices and greater efficiencies.

Meanwhile, Conwood posted a 10 percent increase in operating profit and the company's Grizzly brand delivered double-digit volume growth. Reynolds' bigger U.S. rival, Altria Group Inc.'s Philip Morris USA, announced last month that it would buy UST Inc., the maker of Skoal and Copenhagen, for $10.4 billion.

R.J. Reynolds said growth brands Camel and Pall Mall continued to gain market share. R.J. Reynolds said it will focus on strengthening Camel's position in the growing menthol category by promoting products such as Camel Crush, which gives smokers the option of changing each cigarette from regular to menthol by crushing a capsule in the filter.

The company's market share was 28.2 percent.

Shares rose $1.17, or 2.6 percent, to $46.39 in midday trading Wednesday.

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