Reynolds American Inc.’s second-quarter profits increased 35% owing to higher prices for cigarettes and snuff. That helped compensate the tobacco company’s drop in cigarette sales.
Daniel Delen, Chief Executive of the tobacco company, said that Reynolds American got higher income despite the current heavy promotional activity from other cigarette makers.
Reynolds American and competitor tobacco companies come across difficult operating conditions as volumes of cigarettes have been decreasing and a weak economy along with high unemployment continue to be the reason of small consumer disposable income. The volume decrease depends on the major players who decree price increases and cutting costs to strengthen profitability.
Reynolds American has not changed price points on Camel and Pall Mall cigarettes and kept broadly firm, but the company has been losing share as Altria Group concentrates more on market share gains for Marlboro cigarettes.
On July 19 Altria said that due to higher smokeless volume, the second-quarter profits increased twice.
American Snuff again performed well for Reynolds American. Volume increased 11%, more than twice the industry’s growth rate. The volume and pricing of Grizzly helped augment the segment’s profit, and not so long ago Reynolds American launched the product with new packaging.
Reynolds American informed about its profit of $443 million, or 78 cents a share, up from $327 million, or 56 cents, a year earlier. Excluding lawsuits and restructuring charges, income increased to 79 cents from 71 cents. Sales decreased 4% to $2.18 billion.
Operating margin increased to 33.7% from 25.6%.
The major Camel and Pall Mall brands experienced volume drops of 4.1% and 3.6%, respectively. Market share for Camel and Pall Mall went lower, while Reynolds American’s total cigarette market share decreased 1.4 percentage points to 26.2%.
Mr. Delen said the company’ succeed in efforts to spread the Camel Snus. The brand holds more than 75% of the growing snus market. Camel Snus is represented in six styles and the latest mint offering has received strength.
Reynolds American spent $250 million in the quarter to repurchase 6.1 million shares.
Reynolds American’s shares declined 1.4% at $45.11 in recent trading, decreasing with the broader market. The stock has increased 8.9% in 2012, the weakest gain of the four publicly traded U.S. tobacco companies.
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