Cigarette maker

R.J. Reynolds Tobacco Holdings

(RJR)

swung to a profit in the first quarter, despite a 20% drop in revenue.

The company earned $71 million, or 84 cents a share, compared with a loss of $335 million, or $3.66 a share, in the first quarter of 2002. Analysts were expecting earnings of 78 cents a share. Year-earlier results included a $502 million trademark-impairment charge from an accounting change. Excluding the charge, the company earned $167 million, or $1.79 a share, in the first quarter of 2002.

Revenue was $1.22 million, compared with $1.55 million in last year's comparable quarter.

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"RJR's financial results for the first quarter of 2003 reflect lower volume and the continuing challenges of an intensely competitive environment," said Andrew J. Schindler, chief executive. "RJR's profitability continues to be adversely affected by the growth of deep-discount brands, high levels of competitive promotional spending and the effects of state cigarette excise tax increases."

R.J. Reynolds said 2003's first quarter experienced an accelerated rate of decline in shipments due to trade inventory shifts and reduced consumption in the entire industry. Shipments decreased 12.9% to 88.2 billion units.

The company lowered its full-year 2003 net income outlook to about $250 million, or $3 a share, compared with a previous forecast of $400 million to $465 million. Analysts expect $4.60 a share. The company also said that given the current volatility in the marketplace, it will not provide second-quarter guidance. Analysts expect $1.55 a share. The company earned $2.29 a share in the second quarter of 2002.

The company's shares were sharply lower after

Standard & Poor's

said it may cut R.J. Reynolds' rating following the company's lowered 2003 outlook. Recently, shares were down 16.1%, or $5.50, at $28.70.

S&P said it may cut the company's corporate credit and senior unsecured BBB-minus rating, and it may also cut and its senior unsecured BB-plus rating on certain issues not guaranteed by R.J. Reynolds' key operating company, R.J. Reynolds Tobacco Co. The company had about $2.5 billion of total debt on March 31, S&P said.