Sales of Camel, Pall Mall key as tobacco company Reynolds American reports 3Q earns

Reynolds American Inc., the second-biggest U.S. tobacco firm, should give investors some information about its premium Camel cigarette brand and its value-priced Pall Mall brand when it gives its third-quarter results before the stock markets open on October 18.

Americans are purchasing fewer cigarettes as they experience growing taxes and tough smoking bans, health concerns and social stigma.

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Lucky Strike cigarette packs

Most cigarette firms have increased prices and cut costs to strengthen earnings as decreasing demand cuts into cigarette sales.

But the drop in cigarette volumes industry wide has resulted in heavy promotional activity by the nation’s greatest cigarette firms.

Reynolds American based in Winston-Salem, N.C. said that those dynamics forced its cigarette volumes to fall almost 7 per cent to 18.1 billion cigarettes in the second quarter, in comparison with a predicted total industry volume fall of 1.7 per cent.

In the course of that period, its R.J. Reynolds Tobacco subsidiary sold 4 per cent less of its Camel brand and volumes of Pall Mall fell into 3.6 per cent. Camel’s market share dropped a bit to 8.3 per cent of the U.S. market, while Pall Mall’s market share dropped 0.2 percentage points to 8.4 per cent.

Reynolds has advertised Pall Mall as a longer-lasting and more reasonably priced cigarette as smokers experience the weak economy and high unemployment, and has said that half the people who use this cigarette brand continue smoking it. Still Reynolds has suffered pressure from its rivals looking to appeal to more smokers looking to save money.

Reynolds American as well sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.

Experts take notice of the company’s smokeless tobacco products — a segment of the tobacco industry that’s growing and becoming significantly competitive as firms fight the fall in cigarette sales. Volume for its smokeless tobacco brands increased almost 11 per cent in the second quarter in comparison with a year ago. Its share of the U.S. retail market increased 1.7 percentage points to 32.4 per cent.

In 2009, Reynolds acquired a Swedish company Niconovum AB, which produces nicotine gum, pouches and spray products. The test market is the first of its products to be marketed in the U.S.

Constant strength from Pall Mall could signal that consumers are still using cheaper brands to save money, and those who smoked the se cigarettes during the recession are remaining loyal. But if volumes of premium brands like Camel are rebounding, that could mean smokers are adapting to higher prices on cigarettes observing federal and state tax hikes.

Reynolds American revealed adjusted earnings of 70 cents per share. Its income was $2.2 billion, not including excise taxes.

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