R.J. Reynolds to Cut 40% of Workforce

R.J. Reynolds Tobacco (RJR Quote) will take a third-quarter charge and eliminate 40% of its workforce as part of a restructuring plan the company announced Wednesday.

The job cuts cover 2,600 workers and are a component of the company's goal to reduce its cost structure by $1 billion by the end of 2005.

Reynolds will record a charge of about $340 million in the third quarter, primarily associated with the workforce reduction. The company also revised its full-year earnings guidance downward to reflect this charge, which will be partially offset by cost savings in 2003.

Shares of Reynolds were gaining $2.46, or 7.2%, to $36.65 in premarket trading on Instinet.

"Given the continuing challenges in the domestic market, it's critical that we position ourselves for future profit growth," the company said in a press release. "Volume declines and lower margins led us to conduct a comprehensive business review over the past several months. We concluded that the company needed to more sharply focus its brand investment strategy and reduce its cost structure."

The company hopes to improve its profitability through greater emphasis on its brands with the highest growth potential. As a result, Reynolds will focus its marketing efforts on the Camel and Salem brands, while reducing its investments in Winston and Doral cigarettes.

The job cuts will generate about $180 million in savings in 2004, increasing to about $230 million on an annualized basis.

Reynolds said that through 2004, charges are expected to total about $425 million, including a $55 million charge taken in second quarter, the $340 million third-quarter charge, an estimated $10 million charge in the fourth quarter, and additional charges of $20 million expected through next year.