Earnings Preview: Reynolds American To Post 3Q

MICHAEL FELBERBAUM

RICHMOND, Va. (AP) ⿿ Reynolds American Inc., the second-biggest U.S. cigarette company, should give investors some insight into its premium Camel brand and its value-priced Pall Mall brand when it releases its third-quarter results before the stock markets open Tuesday.

Americans are buying fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma.

WHAT TO WATCH FOR: Most tobacco companies have raised prices and cut costs to bolster profits as declining demand cuts into cigarette sales.

But the decline in cigarette volumes industrywide has led to heavy promotional activity by the nation's largest tobacco companies.

Winston-Salem, N.C.-based Reynolds American said that those dynamics drove its cigarette volumes down nearly 7 percent to 18.1 billion cigarettes in the second quarter, compared with an estimated total industry volume decline of 1.7 percent.

During that period, its R.J. Reynolds Tobacco subsidiary sold 4 percent less of its Camel brand and volumes of Pall Mall fell 3.6 percent. Camel's market share fell slightly to 8.3 percent of the U.S. market, while Pall Mall's market share fell 0.2 percentage points to 8.4 percent.

The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it. Still Reynolds has faced pressure from its competitors looking to attract more smokers looking to save money.

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

Analysts pay close attention to the company's smokeless tobacco products ⿿ a segment of the tobacco industry that's growing and becoming increasingly competitive as companies fight the decline in cigarette sales. Volume for its smokeless tobacco brands rose nearly 11 percent in the second quarter compared with a year ago. Its share of the U.S. retail market grew 1.7 percentage points to 32.4 percent.

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