Camel maker Reynolds 1Q profit falls more than 28 pct on lower cigarette sales, higher costs

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RICHMOND, Va. – Reynolds American Inc.’s first-quarter profit fell more than 28 per cent as the company sold fewer cigarettes and spent more on expanding its electronic cigarette brand and legal costs.

The nation’s second-biggest tobacco company on Wednesday reported earnings of $363 million, or 67 cents per share, for the quarter ended March. 31. That’s down from $508 million, or 92 cents per share, a year earlier.

Adjusted earnings were 72 cents per share, missing Wall Street estimates by 2 cents.

The Winston-Salem, N.C., maker of Camel and Pall Mall cigarettes said revenue excluding excise taxes increased nearly 3 per cent to $1.93 billion. Analysts polled by FactSet expected $1.91 billion.

The company said its R.J. Reynolds Tobacco subsidiary sold 14.3 billion cigarettes, a decline of about 4 per cent, compared with a estimated decline of about 3 per cent for the industry as a whole.

Volumes for Camel grew 2.5 per cent and volumes for Pall Mall were flat. The brands account for more than 60 per cent of the company’s total cigarette volume. Shipments of its other brands, which include Winston, Kool, Doral and Salem, fell about 13 per cent.

Camel’s market share increased 0.4 percentage points to 10 per cent of the U.S. market, while Pall Mall’s market share grew 0.3 percentage points to 9.5 per cent.

The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment.

The number of Natural American Spirit cigarettes sold by its Santa Fe Natural Tobacco subsidiary grew nearly 11 per cent to 800 million.

Reynolds and other tobacco companies are also focusing on cigarette alternatives such as snuff, chewing tobacco and electronic cigarettes as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.

Volume for its smokeless tobacco brands including Grizzly and Kodiak rose about 11 per cent compared with a year ago. The brands had a 34.6 per cent share of the U.S. retail market, though that market is tiny compared with cigarettes.

The company said its Vuse brand electronic cigarette is on track for its initial wave of national distribution this summer. It expects spending on the brand, which is currently in Colorado and Utah, to increase in the second quarter.

Reynolds American on Wednesday also reaffirmed its full-year 2014 earnings forecast in the range of $3.30 and $3.45 per share. Analysts expect $3.37 per share.

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Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum .

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