Reynolds American 4Q profit up 16 pct

Reynolds American Inc., the nation's second-biggest tobacco company, said Wednesday that its fourth-quarter profits rose 16 percent as higher prices and productivity gains helped offset declining cigarette sales.

The maker of Camel, Pall Mall and Natural American Spirit brand cigarettes reported net income of $304 million, or 52 cents per share, for the three-month period ended Dec. 31, up from $262 million, or 45 cents per share, a year ago.

Reynolds American said that adjusted for charges related to the value of one of its trademarks and other costs, it earned 72 cents per share, beating Wall Street estimates of 68 cents per share.

The Winston-Salem, N.C., company said revenue excluding excise taxes was flat at $2.08 billion. Analysts polled by FactSet expected revenue of $2.04 billion.

Shares fell 60 cents, or about 1.5 percent, to $39.51 in morning trading on Wednesday.

"Over the past year, the marketplace environment has been a difficult one and the year ahead is not likely to be any easier," CEO Daniel M. Delen said in a conference call. "The weak economy and high unemployment rates continue to put pressure on consumers' disposable income and competitive promotional activity remains intense."

Reynolds American also said Wednesday that it has started a detailed review of its businesses to "ensure they are aligned with today's economic and competitive landscape." It expects that review to be completed by March 31.

Meanwhile, the company confirmed that it has laid off workers at its Tobaccoville, N.C., manufacturing plant, but would not say how many. It also has asked some of its salaried and hourly employees whether they'd be interested in leaving the company in return for a severance package, spokeswoman Maura Payne said.

The company said heavy promotional activity by its competitors drove its cigarette volumes down about 7 percent to 10.5 billion cigarettes.

Its R.J. Reynolds Tobacco subsidiary sold 4.5 percent less of its Camel brand, and volumes of Pall Mall grew less than 1 percent.

Camel's market share remained stable at 8.0 percent of the U.S. market, while Pall Mall's market share grew 0.3 percentage points to 8.6 percent.

The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it.

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

Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose 6 percent compared with a year ago. Its share of the U.S. retail market grew 0.9 percentage points to 32.1 percent.

For the full year, the company said it earned $1.4 billion, or $2.41 per share, in 2011 compared with $1.1 billion, or $1.92 per share, in the previous year. It said its adjusted earnings for the year were $2.81 per share. Revenue excluding excise taxes was flat at $8.5 billion.

Reynolds American also said it expects its full-year adjusted earnings to be between $2.91 and $3.01 per share.

Last week, rival Altria Group Inc., owner of the nation's biggest cigarette maker, Philip Morris USA, said its fourth-quarter profit fell about 9 percent on charges even as higher prices and gains from its smokeless tobacco products helped bolster its sales. Its cigarettes volumes were flat at 33.7 billion cigarettes and its top-selling Marlboro brand lost 0.7 points of market share to end up with 41.6 percent of the U.S. market.