Wednesday, February 2, 2011

Reynolds American Inc. (NYSE: RAI): Q4 Earnings Preview 2010

Reynolds American Inc. (NYSE: RAI), the nation's second-biggest cigarette company, is scheduled to release its fourth-quarter earnings before the opening bell on Thursday, February 3, 2011. Analysts, on average, expect the company to report earnings of 61 cents per share on revenue of $2.15 billion. In the year ago quarter, the company reported earnings of 55 per share on revenue of $2.10 billion.

Reynolds American Inc. (RAI), through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The Company’s wholly owned subsidiaries include R. J. Reynolds Tobacco Company, Santa Fe Natural Tobacco Company, Inc. (Santa Fe), Lane, Limited (Lane), Conwood Holdings Inc., and American Snuff Company, LLC (formerly known as Conwood Company, LLC) and Rosswil LLC, collectively referred to as the Conwood companies.

The demand for company's cigarettes has been impacted by decreasing social acceptability of smoking, increased regulation, public awareness of smoking's health risks, and rising costs due to excise taxes and litigation expenses. However, RAI has managed to grow its profits despite negative press and increased regulatory actions.

In the preceding third quarter, the Winston-Salem, North Carolina-based company's net income was  $381 million, or $1.30 a share,compared to $362 million, or $1.24 a share, in the same period a year ago. On an adjusted basis, the company would have earned $1.35 a share.  

At its last earnings call in October, the company raised its fiscal 2010 outlook. The company said that it now expects to earn $4.95 to $5.05 a share for 2010, vs. a previous target of $4.90 to $5.05. This guidance excludes charges related to plant closings, expansion of R.J. Reynolds’ field trade marketing, health care and Canadian government settlements. 

The company has benefited from higher prices  and volume in some key brands, along with promotional and pricing efficiencies and productivity gains. Reynolds manages the changing competitive and industry landscape through the new product offerings and favorable price/mix growth. Its Camel, Pall Mall, and Grizzly brands continue to outperform

In December, the company said that its board has approved an increase to its dividend policy. The company said the target payout will rise to 80% of current-year net income, up from 75%.  The company said that the sale allows it devote energy and resources to primary growth categories within its businesses.

Among other developments, the tobacco giant recently agreed to sell for $205 million in cash its Lane Ltd. unit to Scandinavian Tobacco Group A/S of Denmark.  Lane's business accounts for 4 cents a share to the company's annual earnings.

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