By MICHAEL FELBERBAUMRICHMOND, Va. (AP) â¿¿ Reynolds American, the nation's second-biggest tobacco company, saw its fourth-quarter profit fall 54 percent on pension and trademark-related charges and other costs. But earnings for the maker of Camel, Pall Mall and Natural American Spirit cigarettes, excluding one-time charges, rose about 6 percent as consumers bought more smokeless tobacco brands like Grizzly and Kodiak. Smokeless tobacco sales, as well as higher prices and productivity gains, offset cigarette volume declines and increased promotional spending. Reynolds American Inc., based in Winston-Salem, N.C., said its net income fell to $139 million, or 25 cents per share, for the three-month period ended Dec. 31, down from $304 million, or 52 cents per share, a year ago. Adjusted earnings were 76 cents per share, beating Wall Street expectations by three cents. Revenue excluding excise taxes fell slightly to $2.08 billion. Analysts polled by FactSet expected $2.06 billion. Citi analyst Vivien Azer said Reynolds had a "solid finish in a tough competitive environment," in a note to investors. Company shares fell 33 cents to $43.89 in morning trading. "Continued economic weakness, combined with an intensely competitive marketplace presented significant challenges for our businesses," CEO Daniel M. Delen said in a conference call with investors. The number of cigarettes sold by its R.J. Reynolds Tobacco Co. subsidiary fell about 3 percent during the quarter to 17.1 billion, compared with its estimate of a total industry decline of less than 1 percent. It sold 5.5 percent more of its Pall Mall brand and volumes of Camel fell slightly. The brands account for more than 60 percent of its total cigarette volume. Camel's market share remained stable at 8.6 percent of the U.S. market, while Pall Mall's market share grew 0.3 percentage points to 8.9 percent. The company has promoted Pall Mall as a longer-lasting and more affordable cigarette for smokers who are weathering the weak economy and high unemployment. The company has said that half of the people who try the brand continue using it.
Yet competitors are doing the same and the company is facing pressure from rivals.The number of Santa Fe Natural Tobacco Co.'s Natural American Spirit cigarettes it sold grew more than 20 percent to about 800 million. Reynolds American and other tobacco companies are focusing on cigarette alternatives such as snuff and chewing tobacco for growth as tax hikes, smoking bans and social stigma make the cigarette business tougher. Volume for its smokeless tobacco brands rose 7 percent compared with a year ago. The brands had a 32.6 percent share of the U.S. retail market, which is tiny compared with cigarettes. The company said it is getting positive feedback from its test market for a nicotine gum under the Zonnic brand, which is meant to help people stop smoking. In 2009, Reynolds bought a Swedish company Niconovum AB, which makes nicotine gum, pouches and spray products. The test market that was initiated in the third quarter is the first of its products to be sold in the U.S. Delen also said its development of its first electronic cigarette under the Vuse brand is "going very well." The company has begun limited distribution of the battery-powered devices heat a liquid nicotine solution, creating vapor that users inhale. For the full year, the company said it earned $1.27 billion, or $2.24 per share, compared with a profit of $1.41 billion, or $2.40 per share, a year ago. Revenue, excluding excise taxes, fell 3 percent to $8.3 billion. Cigarette volumes fell more than 5 percent to 68.9 billion cigarettes. Its full-year U.S. retail share fell 1.1 percentage points to 26.5 percent of the market. Smokeless tobacco volumes grew 8 percent and it claimed 32.4 percent of the U.S. retail market. Reynolds American also said it expects full-year 2013 adjusted earnings in the range of $3.15 to $3.30 per share. Analysts expect earnings of $3.12 per share.
The company spent $250 million to buy back 6 million shares during the quarter as part of a $2.5 billion share repurchase program. It has about $1.2 billion remaining in that program.___ Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.