Reynolds American Misses Estimates - Analyst Blog

Reynolds American Inc. (RAI) reported fourth quarter and full fiscal 2010 results.

The company posted adjusted quarterly earnings of 60 cents per share which was below the Zacks Consensus Estimate of 62 cents, but surged 9.1% compared to the prior-year quarter.

For the full year earnings grew 7.3% year-over-year to $2.49 per share, which were below the Zacks Consensus Estimate of $2.51 a share.

On a reported basis, earnings grew 43.2% to 53 cents a share in the quarter and surged 15.2% to $1.90 for the year.

The North Carolina-based manufacturer and distributor of cigarette and other tobacco products expects fiscal 2011 earnings to be in 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

Reynolds' net sales in the reported quarter were almost flat year-over-year declining marginally by 0.7% to $2,081 million from $2,096 million in the year-ago quarter. Adjusted operating income came in at $618 million, a growth of 9.8% over $563 million recorded in the prior-year quarter.

Annual net sales grew 1.6% to $8,551 million versus $8,419 million in fiscal 2009. Adjusted operating income for the year increased 6.3% to $2,549 million.

Segment Details

R.J. Reynolds:Segment revenue declined 2.8% to $1,771 million in the quarter compared with $1,821 million in the prior-year quarter. R.J. Reynolds' cigarette market share was flat year-over-year in the quarter, attributed to losses on non-core brands as well as private label brands, which the company continues to de-emphasize.

Compared to the year-ago quarter, the segment's adjusted operating income grew 58.3% to $502 million in the reported quarter, reflecting volume gains, higher cigarette pricing, productivity gains and lower promotional spending.

American Snuff:Segment revenue increased 18.6% to $191 million in the quarter compared with $161 million in the prior-year quarter. Adjusted operating income expanded 23.5% to $103 million in the quarter, driven by higher moist-snuff pricing and volume.

Financial Update and Dividend Increase

Reynolds American ended the year with cash and cash equivalents of $2.2 billion, long term debt of $3.7 billion and shareholders equity of $6.5 billion.

In fiscal 2010, the company raised its dividend payout ratio to 80% of the company's net income compared to 75% earlier.

The company's divestiture of its Lane operations which was accretive to fiscal 2010 earnings by 4 cents is expected to be completed by the first half of fiscal 2011.