Reynolds American Q3 Results Top Estimates, Backs 2014 Outlook

(RTTNews) - Tobacco company Reynolds American, Inc. (RAI), which agreed to acquire smaller rival Lorillard, Inc. (LO), reported Tuesday a profit for the third quarter that increased two percent from last year, despite lower cigarette volumes, reflecting higher cigarette and moist-snuff pricing, and improved operating margins. The company reported earnings and margin growth across its reportable business segments.

Both adjusted earnings per share and quarterly net sales topped analysts' expectation. The company also reaffirmed its earnings forecast for full-year 2014, citing year-to-date performance.

"I'm very pleased to report another strong performance by our operating companies, which drove Reynolds American's earnings and margin higher in the third quarter. All of our reportable business segments increased both profit and margin during the quarter, while they continued to enhance their powerful key brands," President and CEO Susan Cameron said in a statement.

The Winston-Salem, North Carolina-based maker of Camel cigarettes and Grizzly smokeless tobacco reported net income of $467 million or $0.88 per share for the third quarter, higher than $457 million or $0.84 per share in the prior-year quarter.

The results for the latest quarter include transaction-related and financing costs, charges for Engle progeny lawsuits and implementation costs, and other special items.

Excluding items, adjusted net income for the latest quarter was $505 million or $0.95 per share, compared to $468 million or $0.86 per share in the year-ago quarter.

On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.91 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter grew 4.9 percent to $2.24 billion from $2.14 billion in the same quarter last year, and topped seven Wall Street analysts' consensus revenue estimate of $2.19 billion.

The company's R.J. Reynolds Tobacco segment generated sales of $1.80 billion, up from prior-year quarter's sales of $1.74 billion. Shipments were down 2.9 percent, and cigarette market share edged down 0.1 percentage points to 26.6 percent, supported by solid performance of growth brands Camel and Pall Mall.

American Snuff sales grew to $202 million from $185 million last year. Moist-snuff volume increased 2.9 percent, while moist-snuff market share edged down 0.1 percentage points to 34.0 percent. Grizzly shipment volume also grew 3.6 percent, and market share was up 0.1 percentage points to 31.1 percent.

Santa Fe sales increased to $179 million from $160 million in the year-ago quarter. Natural American Spirit super-premium brand volume jumped by 7.9 percent, and market share edged up 0.2 percentage points to 1.7 percent.

The company's adjusted operating margin strengthened further in the third quarter, increasing 0.2 percentage points, to 38.0 percent from last year.

Looking ahead to fiscal 2014, Reynolds American reaffirmed its adjusted earnings guidance range of $3.35 to $3.45 per share. Street is currently looking for full-year 2014 earnings of $3.38 per share.

"The expansion of R.J. Reynolds Vapor Company's VUSE Digital Vapor Cigarette is going very well. VUSE will be available in almost 70,000 selected retail outlets by early next week, and that will be followed by another wave of expansion early next year," Cameron added.

Further, Niconovum USA began in September the national distribution of its ZONNIC gum, a nicotine-replacement therapy product, in September. ZONNIC is expected to be in about 8,000 selected outlets by the end of this month, and its retail availability will continue to grow through the rest of the year. There has been strong interest from retailers and smokers for ZONNIC.

The company noted that it continues to diligently work to obtain the necessary regulatory, shareholder and other approvals for the company's proposed acquisition of Lorillard and divestiture of select brands and assets to a subsidiary of Imperial Tobacco Group PLC.

Reynolds American agreed in mid-July to acquire Lorillard and its popular Newport menthol brand in a cash and stock deal valued at $27.4 billion. The company remains confident that the transaction will be completed by mid-2015.

RAI closed Monday's regular trading session at $59.13, up $0.65 on a volume of 2.10 million shares. In the past 52-week period, the stock has been trading in a range of $46.55 to $63.39.