Reynolds’ Q4 profit down 17%
Reynolds American Inc. ended 2009 on a down note, with a slight drop in sales and higher pension expenses contributing to a 17 percent decline in profit.
Reynolds reported yesterday that it had net income of $215 million, or diluted earnings of 74 cents a share.
Excluding $35 million in restructuring charges and $71 million in trademark-impairment charges, Reynolds had net income of $321 million, or diluted earnings of $1.10.
The average forecast was earnings of $1.15 by analysts surveyed by Zacks Investment Research. Most analysts do not include charges in their forecasts.
Reynolds’ share price decreased 60 cents to close at $53.51 yesterday.
Susan Ivey, the chairwoman, president and chief executive of Reynolds, said she was pleased with the company’s overall performance last year despite “an extraordinary set of challenges including unprecedented increases in tobacco excise taxes, heightened competitive activity and the effects of a deep recession.”
“Our operating companies continued to enhance their fundamental strength with key-brand volume and share gains, and productivity improvements,” Ivey said.
“However, our companies’ strong underlying performance was overshadowed by the negative impact of 40 cents per share in increased pension expense, which drove a year-over-year earnings decline.” Reynolds said it contributed an additional $300 million to the pension plan last month.
Reynolds reported $2.09 billion in sales in the quarter, down 3.7 percent from the fourth quarter of 2008.
There were several factors behind the sales decline, some related to consumers smoking less and buying discount brands in response to higher state and federal excise taxes, and also having less disposable income.
But some of the decline is attributed to Reynolds’ increasing emphasis on Camel as its top brand and Pall Mall as its lower-priced alternative, while reducing the marketing of such historic brands as Kool, Winston, Salem and Doral.
For instance, Reynolds discontinued four Kool styles during the fourth quarter, as well as two from Pall Mall and one each from Camel and 1st Choice. It also got rid of soft-pack styles for Carlton, Doral, Gold Coast, GPC, Jacks, Kool, Sundance and Winston.
“We continue to see the benefits of our productivity initiatives, including further streamlining our product offerings as we discontinued more than 150 (styles) to end the year with 235,” said Daniel Delen, the chairman, president and chief executive of Reynolds Tobacco.
“We also continue to eliminate non-essential activities, and outsource those that are non-core.”
Camel’s market share remained relatively flat at 7.4 percent. It’s the third- largest U.S. brand, behind Marlboro and Newport.
However, the aggressive marketing and pricing campaign for Pall Mall paid off with enough of a sales surge to make it the fourth-largest U.S. brand with 6 percent market share, up from 3.2 percent a year ago.
The overall sales decline, which included smokeless products, proved disappointing to Judy Hong, an analyst with Goldman Sachs.
“The cigarette volume decline of 7.6 percent was better than our forecast of minus 10.8 percent,” Hong said. “However, this was entirely driven by 92 percent volume growth from Pall Mall.
“Second, Conwood volumes came in softer than our expectations with a 5.7 percent increase versus our estimate of 9.4 percent.”
For the full year, Reynolds reported net income of $962 million, down 28.1 percent, or diluted earnings of $3.30.
Excluding charges, it had net income of $1.35 billion, down 3.8 percent, or diluted earnings of $4.64. Reynolds also had a net gain in fiscal 2008 from ending its Gallaher joint venture.
Reynolds provided earnings guidance of between $4.80 and $5 a share for fiscal 2010.
By Richard Crave, Jjournalnow.com
February 5, 2010
Tags: Renolds Tobacco
