Reynolds American Inc. (RAI) has delivered robust second quarter results for 2010. The company posted adjusted quarterly earnings of $1.32 per share surpassed the Zacks Consensus Estimate of $1.30 and year-ago earnings of $1.29 per share. On a reported basis, earnings plunged 9.3% to $1.17 a share in the quarter, compared with $1.29 delivered in year-earlier period.

The North Carolina-based manufacturer and distributor of cigarette and other tobacco products narrowed and increased fiscal 2010 adjusted earnings to $4.90−$5.05 per share from the prior forecast of $4.80−$5.00. This guidance excludes charges related to plant closings, expansion of R.J. Reynolds’ field trade marketing, health care and Canadian government settlements. The current Zacks Consensus Estimate of $4.94 is now at the low-end of the guidance range.

Reynolds’ net sales in the reported quarter slipped 0.2% to $2,245 million from $2,250 million in the year-ago quarter. Adjusted operating income came in at $675 million, a growth of 4.0% over $649 million recorded in the prior-year quarter.

Segment Details

R.J. Reynolds: Segment revenue sank to $1,942 million in the quarter compared with $1,975 million in the prior-year quarter. R.J. Reynolds’ cigarette market share declined 0.8% to 27.9% 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 2.2% to $568 million in the reported quarter, reflecting higher cigarette pricing, productivity gains and lower promotional spending more than offset lower cigarette volume.

American Snuff: Segment revenue dipped to $182 million in the quarter compared with $169 million in the prior-year quarter. Adjusted operating income slipped 7.1% to $85 million in the quarter, as excise-related declines in roll-your-own and other non-core tobacco products more than offset higher moist-snuff pricing and volume.

Reynolds announced in May that two of its cigarette factories will be closed over the next year, and that American Snuff Co. is expanding its smokeless-tobacco processing and manufacturing capacity.

Financial Update

Reynolds’ ended the quarter with cash and cash equivalents of $1,621 million and long-term debt of $3,719 million, compared with $2,723 million of cash and $4,136 million of long-term debt at the end of fiscal 2009.
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