Oct. 22, 2009 (PR Newswire) -- WINSTON-SALEM, N.C., Oct. 22 /PRNewswire-FirstCall/ --
Third Quarter and Nine Months 2009 -- At a Glance
-- Adjusted EPS: third quarter at $1.24, down 3.9 percent; nine months at
$3.54, up 0.6 percent
-- Excludes non-cash trademark impairments in both years, and
prior-year restructuring charges and gain from joint-venture
termination
-- Reported EPS: third quarter at $1.24, up 72.2 percent; nine months at
$2.56, down 30.2 percent
-- RAI increases 2009 guidance: Adjusted EPS range of $4.60 to $4.70
-- R.J. Reynolds Tobacco Company posts additional margin gains
-- Conwood captures 29.9 percent share of moist-snuff market
-- RAI again recognized as a leader in corporate sustainability
All references in this release to "reported" numbers refer to GAAP measurements; all "adjusted" numbers are non-GAAP, as defined in schedules 2 and 3 of this release, which reconcile reported to adjusted results for the third quarter and nine months.
Reynolds American Inc. (NYSE: RAI) today announced third-quarter 2009 earnings of $1.24 per share on both an adjusted and reported basis. Adjusted EPS was down 3.9 percent from the prior-year period. On a reported basis, EPS was up 72.2 percent, driven by prior-year trademark impairment and restructuring charges.
For the first nine months of 2009, reported EPS was $2.56, down 30.2 percent from the prior-year period. Current-year trademark impairment charges were greater than the impact of a prior-year joint-venture (JV) gain and trademark and restructuring charges. Excluding trademark impairments, the JV gain and restructuring charges, nine-month adjusted EPS was up 0.6 percent at $3.54 as higher pricing, productivity and moist-snuff volume offset cigarette volume declines and higher pension and legal expense.
RAI again raised and narrowed its full-year guidance, and now expects 2009 adjusted EPS of $4.60 to $4.70, which excludes any trademark impairment charges, but includes a $0.40 per share year-over-year increase in pension expense.
3Q and Nine Month 2009 Financial Results - Highlights
(unaudited)
(all dollars in millions, except per-share amounts;
for reconciliations, including GAAP to non-GAAP, see schedules 2 and 3)
For the Three Months For the Nine Months
Ended Sept. 30 Ended Sept. 30
% %
2009 2008 Change 2009 2008 Change
Net sales $ 2,152 $ 2,272 (5.3)% $ 6,323 $ 6,668 (5.2)%
Operating income
Reported (GAAP) $ 636 $ 399 59.4 % $ 1,382 $ 1,542 (10.4)%
Adjusted
(Non-GAAP) 636 663 (4.1)% 1,835 1,806 1.6 %
Net income
Reported (GAAP) $ 362 $ 211 71.6 % $ 747 $ 1,080 (30.8)%
Adjusted
(Non-GAAP) 362 377 (4.0)% 1,032 1,036 (0.4)%
Net income per
diluted share
Reported (GAAP) $ 1.24 $ 0.72 72.2 % $ 2.56 $ 3.67 (30.2)%
Adjusted
(Non-GAAP) 1.24 1.29 (3.9)% 3.54 3.52 0.6 %
MANAGEMENT'S PERSPECTIVE
Overview
"Reynolds American's third-quarter results reflect continued improvement in the company's operating businesses despite the year's many challenges," said Susan M. Ivey, RAI's chairman, president and chief executive officer.
"This year has been marked by unprecedented increases in excise taxes on tobacco products, an extremely weak economy and intense competitive activity," she said. "But the strength of our strategies and our operating companies' brands has allowed us to continue to perform well even in these difficult times.
"Our results for the first nine months of the year support the improved full-year outlook we announced today," she said. The company now expects 2009 adjusted EPS of $4.60 to $4.70, which excludes trademark impairments.
"In addition," Ivey said, "our recent 6 percent dividend increase brought RAI's annualized rate to $3.60 a share, further demonstrating our confidence in Reynolds American and our operating businesses as we move ahead."
Ivey said that the third quarter was highlighted by additional improvements in adjusted operating margin and key-brand share performance at R.J. Reynolds, continued strong gains in moist-snuff volume and share at Conwood, and robust growth at Santa Fe Natural Tobacco Co.
She noted that RAI was recently recognized as a leader in corporate sustainability for the second consecutive year by being awarded membership in the 2009-2010 Dow Jones Sustainability North America Index. "We're very pleased with this independent recognition of our ongoing sustainability and responsibility efforts," she said.
"RAI's total-tobacco business model and the strategies of our operating companies, which continue to drive growth and innovation while keeping a sharp focus on productivity, serve us extremely well in this evolving tobacco environment," Ivey said. "These strengths support our commitment to building shareholder value."
R.J. Reynolds
"R.J. Reynolds had another solid quarter, with a higher adjusted operating margin and cigarette volume declines that were more in line with the industry average," said Daniel M. Delen, R.J. Reynolds' chairman, president and chief executive officer. Compared with the prior-year period, higher pricing, lower promotional expense and continued productivity gains largely offset the impact of lower cigarette volume and higher pension expense.
R.J. Reynolds' third-quarter operating income of $532 million was down 4.7 percent from the prior-year period. This includes the impact of higher quarter-over-quarter pension expense of about $45 million. In contrast, the company's operating margin of 28.5 percent was up 0.5 percentage points on the strength of higher pricing and productivity improvements.
For the first nine months, adjusted operating income of $1.55 billion was up 1.6 percent. This excludes non-cash trademark impairment charges of $377 million, but includes higher pension expense of about $135 million. Nine-month adjusted operating margin of 28.1 percent was 2.1 percentage points higher than the prior-year period.
"Our refined brand-portfolio strategy, as well as productivity and promotional efficiency efforts, are working well and are driving consistent improvement in our margins this year," Delen said.
R.J. Reynolds' third-quarter cigarette shipment volume declined 11.0 percent from the prior-year period, compared with an industry decline of 12.6 percent. The company's performance benefited from strong volume on Pall Mall, which retained a significant portion of the volume it gained from its second-quarter pulse promotion.
For the first nine months, R.J. Reynolds' cigarette volume declined 9.1 percent, which was much more in line with the industry average of 8.9 percent.
R.J. Reynolds' total third-quarter cigarette market share was 28.2 percent, down 0.2 percentage points from the prior-year period, with growth-brand gains partially offsetting declines in the company's support and non-support brands. Delen noted that the company's total cigarette market share has remained relatively stable since the beginning of 2008, as growth-brand gains have offset share declines in other brands.
The company's growth brands, Camel and Pall Mall, increased third-quarter cigarette market share by 2.1 percentage points, bringing their combined share to 12.7 percent. These brands have now grown to 45 percent of R.J. Reynolds' total cigarette share.
Camel, the company's leading premium brand, continued to show strength, with a third-quarter total-tobacco market share of 8.0 percent, up 0.2 percentage points from the prior-year period, as performance from Camel Snus more than offset a modest cigarette decline of 0.1 percentage points. Camel's third-quarter cigarette share was 7.7 percent.
"Our focus on strengthening the performance of Camel's core cigarette styles included eliminating 13 non-core styles since the beginning of last year," Delen said. "This puts more focus on Camel's core styles at retail, and reduces complexity in manufacturing and throughout the supply chain."
R.J. Reynolds' latest cigarette innovation, Camel Crush, continues to perform well, with market share of 0.7 percent in the third quarter. Delen noted that this new style has delivered consistently good results since its national introduction a year ago, even though it has received relatively low promotional support.
Camel Crush uses R.J. Reynolds' innovative capsule technology to offer smokers the choice of regular or menthol with each cigarette. In August, the company expanded the use of this technology to Camel's two core menthol styles to enhance the brand's performance in the growing menthol category. These styles now offer adult smokers the option of adding more menthol flavor to each cigarette at any time.
"Our capsule technology offers a meaningful product point of difference," Delen said. "It lets adult smokers decide how they most enjoy each cigarette, an option offered by no other brand."
Camel's innovative smokeless tobacco products -- Camel Snus and three styles of Camel Dissolvables -- also continued to make good progress.
Camel Snus, which was expanded nationally in the first quarter of this year, continues to gain awareness and trial. Its third-quarter market share was 0.3 percentage points on a cigarette-equivalent basis, which assumes that a tin of Camel Snus is equal to a pack of cigarettes.
Camel Dissolvables -- Orbs, Sticks and Strips -- are currently in three lead markets. These products are made of finely-milled tobacco and completely dissolve in the mouth, offering consumers the most discreet and convenient way to enjoy tobacco today. "We're excited about the potential of these new products, and we're gaining valuable consumer insights about Dissolvables in their three lead markets," Delen said.
Pall Mall, R.J. Reynolds' other growth brand, continues to perform very well. The brand's high quality, great price and the fact that it lasts longer than other cigarettes, offers exceptional value to consumers. That makes Pall Mall especially appealing in the current economic environment. The brand's third-quarter market share rose 2.3 percentage points from the prior-year period, to 5.0 percent.
Pall Mall began another pulse promotion in October, and the company expects this to generate higher levels of trial and conversion.
Pall Mall retains about half of its share gains from promotions, and the brand has added more than 2 share points since its second-quarter promotion.
Delen said that R.J. Reynolds' results reflect the company's fundamentally strong position amid a changing tobacco industry.
"We're continuing to shape the business for long-term, sustainable success," he said. "That means operating our cigarette businesses as efficiently as possible, expanding successfully into new tobacco products, and creating a cost base and organizational structure that delivers speed and flexibility, while generating more resources to invest in areas that offer the greatest opportunities for growth."
Conwood
"Conwood's third-quarter performance was highlighted by continued strong gains in moist-snuff volume and share," said Bryan K. Stockdale, Conwood's president and chief executive officer. "Conwood's total moist-snuff market share is now just under 30 percent, with Grizzly continuing to deliver exceptional growth."
Conwood's third-quarter operating income was $93 million, down 5.1 percent from the prior-year period, with Grizzly pricing and volume gains partially offsetting lower margins on Kodiak, as well as volume declines in roll-your-own and little cigars. The company reduced Kodiak's price in the second quarter to make it competitive with other premium brands.
Conwood's third-quarter operating margin was down 1.4 percentage points, at 52.7 percent, primarily due to Kodiak's lower margins.
For the first nine months, Conwood's adjusted operating income was down 2.4 percent at $269 million, which excludes non-cash trademark impairments of $76 million. The company's adjusted operating margin of 52.5 percent was 1.2 percentage points higher than the prior-year period.
Third-quarter moist-snuff category shipment volume was 3.9 percent higher than the prior-year period.
