Reynolds American Inc. (NYSE:RAI) reported fourth quarter 2011 results on July 22, 2011.
The company posted adjusted quarterly earnings of 67 cents per share, which was below the Zacks Consensus Estimate of 70 cents but inched up 1.5% compared to the prior-year quarter.
According to the management, profits were driven by excellent results reported by Santa Fe Natural Tobacco Company, Inc. (Reynolds American’s subsidiary) in the second quarter on the back of strong volume, share and earnings growth.
The North Carolina-based manufacturer and distributor of cigarette and other tobacco products narrowed fiscal 2011 earnings to the range of $2.60 to $2.70 per share. The current Zacks Consensus Estimate of $2.67 is at the higher end of the guidance range.
Revenues and Operating Margin
Reynolds’ net sales in the reported quarter were almost flat year over year, increasing marginally by 1.0% to $2,267 million from $2,245 million in the year-ago quarter. Sales estimates surpassed Zacks consensus estimate of $2,251 million in the quarter.
Adjusted operating income came in at $683 million, a growth of 1.2% over $675 million recorded in the prior-year quarter.
Segment Details
R.J. Reynolds: Segment revenue inched up 0.7% to $1,956 million in the quarter compared with $1,942 million in the prior-year quarter. R.J. Reynolds’ total second-quarter market share declined 0.5 percentage points from the prior-year quarter, to 27.4 percent.
Compared to the year-ago quarter, the segment’s adjusted operating income declined marginally from the prior year quarter, at $562 million, with cigarette volume declines on support and non-support brands offsetting higher pricing, productivity improvements and growth-brand gains.
Though second-quarter performance was negatively impacted by intense competition and the ongoing economic weakness, management noted that the cigarette category continues to demonstrate pricing poweras reflected by the price increase taken by the R.J Reynolds segment in early July.
American Snuff: Revenues in this segment increased 18.9% to $153 million in the quarter, compared with $182 million in the prior-year quarter.
While moist-snuff consumer off-takeshare increased 1.5 percent from the prior-year quarter, to 31.3 percent, Grizzly’s consumer off-take share increased 1.9 percentage points from the prior-year quarter, to 27.4 percent.
Adjusted operating income was $168 million, 0.6 percent from the prior-year period, driven by the impact of the Lane sale.
Reynolds American ended the year with cash and cash equivalents of $1.3 billion, long-term debt of $3,218 million and shareholders equity of $6.5 billion.
Reynolds American targets a dividend payout ratio of 80 percent. The company increased total dividend payment by nearly 18 percent over the past year.
Our Take
Though the company’s commitment to build and maintain a portfolio of profitable brands and its marketing programs designed to strengthen brand image, build brand awareness and loyalty and shift adult smokers of competing brands to RJR Tobacco encourage us. Whereas increases in the federal tobacco tax, declining retail market share and stiff competition faced from Lorillard, Inc. (NYSE:LO) and Altria Group Inc. (NYSE:MO) still bother us.
| Analysts' Targets | |||||||||||||||||
| UBS Securities | $38 | ||||||||||||||||
| Buy | |||||||||||||||||
Thursday, January 06, 2011
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