Reynolds American profits jump 88 pct in Q1, volume down

Consumers squeezed by higher gas prices and an increase to the payroll tax led Reynolds American Inc. to report a sharp drop in cigarette volumes in the first quarter.

“Overall, the external environment remained challenging,” President and CEO Daniel Delen said. “Industry cigarette volumes were negatively impacted by higher energy prices, the expiration of the payroll-tax holiday and fewer shipping days,” according to a story posted on 4-traders.com.

Profit, meanwhile, jumped 88 percent in the quarter due to lower costs and a $202 million credit tied to a landmark tobacco settlement. Adjusted profit was higher than Wall Street expected, aided by higher cigarette prices and strong demand for smokeless products, though the decline to net sales was worse than anticipated.

Reynolds American and rival tobacco companies face a difficult operating environment as cigarette volumes have been declining for years. A weak economy and high unemployment have continued to pressure consumers’ disposable income. But an estimated 6.2 percent drop to cigarette volumes in the first quarter was more bruising than historical trends, with declines generally averaging 3 percent to 4 percent in recent years. Domestic cigarette shipment volume at the R.J. Reynolds unit fell 8.7 percent in the first quarter, though when adjusting for the two fewer shipping days, the company estimates its cigarette volume dropped about 5.6 percent.

The company’s total cigarette retail market share dropped to 26.1 percent from 26.7 percent, the eighth consecutive year-over-year decline.

Camel and Pall Mall, the company’s core brands, performed better than the overall cigarette unit. Volumes slid 5.5 percent for Camel and 2 percent for Pall Mall, and both posted higher market share. Together, they represent more than two-thirds of the company’s total market share.