Reynolds American Sees Earnings Increase; Begins Layoffs at Tobacco Plant

WINSTON-SALEM, N.C. -- Reynolds American Inc. (RAI) saw its fourth quarter earnings increase, but declining cigarette volume contributed to the company's lower-than-expected revenue.

In earnings released this morning, the locally headquartered tobacco giant said fourth-quarter reported earnings per share (EPS) was 52 cents, a 15.6-increase. For the full-year 2011, reported EPS was $2.40, a 25-percent increase. RAI also issued 2012 EPS guidance of $2.91 to $3.01, an increase of 3.6 percent to 7.1 percent from 2011 adjusted EPS.

Despite the increase in earnings, analysts polled by Thomas Reuters had recently forecast earnings to come in at 69 cents per share, according to Dow Jones Newswire.

"Reynolds American finished the year with solid results, despite the challenging economic and competitive environment," said Daniel M. Delen, RAI's president and CEO. "I'm pleased to report that RAI continued to make progress in the fourth quarter, increasing earnings and margins while further demonstrating our commitment to returning value to shareholder with the of a $2.5-billion share repurchase program. RAI also increased its dividend again in the quarter, bringing the total dividend increase in 2011 to 14.3 percent."

Breaking down the numbers, R.J. Reynolds Tobacco registered a 0.4-percent slip in revenue to $1.76 billion as domestic cigarette volume fell 7.2 percent. Accounting for the elimination of private-label brands, volume dropped 7.1 percent. Total market share, excluding private label brands, fell 1.1 percentage points to 27 percent. Growth brands -- which include Camel and Pall Mall--gained 0.3 percentage points of market share to hold 16.5 percent of the market, according to the news report.

American Snuff Co. -- RAI's smokeless tobacco unit -- saw its total volume increase 6. 1 percent though revenue fell 14 percent. American Snuff is the maker of Grizzly and Kodiak moist snuff.

The company attributed the decline at American Snuff to the sale of Lane, Limited in February 2011.

"Taken into account the absence of Lane's contribution to the bottom line, as well as the investment in new retail contracts, American snuff turned in a very good performance in 2011," Delen stated this morning. "The company's flagship Grizzly brand made substantial gains in both share and volume in the highly competitive but growing moist snuff category."

RAI released its latest results as it also began another round of layoffs. Maura Payne, vice president of communications for Reynolds American, confirmed to The Business Journal that a number of production employees at the R.J. Reynolds Tobacco Co. plant in Tobaccoville have been let go, but said the company won't be commenting on the specific number or nature of the positions that are being eliminated.

An internal memo obtained by news outlet that was sent to RJR employees Wednesday explained that the key components of a restructuring of RJR's manufacturing operations include "eliminating current surplus staffing in some areas of manufacturing" and outsourcing some "non-core activities."

The memo also explained that new production employees joining RJR could see lower pay rates; continuing employees won't see any pay decreases. When asked about the potential pay changes, Payne said no decision had been made.

Production employees are being given the opportunity to voluntarily leave the company, and will receive additional incentive for doing so as opposed to later being terminated, according to the memo. Production employees are attending meetings today to learn about the restructuring and learn about severance options, with the period to volunteer for leaving the company lasting through the end of the day on Feb. 24, according to the memo.

The news outlet adds that the memo notes exit dates for production employees are expected to range from March 31 through the end of 2014.

Overall, RAI is conducting a review of all key activities, according to Delen. The review is expected to be completed by the end of the first quarter.

"In 2012, we intend to sustain our operating companies' key-brand momentum, invest in innovation and have the financial flexibility to take advantage of competitive opportunities," he said. "As a result, we believe it is prudent to once again review key activities and resources to ensure they are aligned with today's economic and competitive landscape. A comprehensive analysis of programs, activities and organizational structures at RAU, RAI Services and most departments within R.J. Reynolds is currently underway. "