Reynolds American Inc. (RAI) reported fourth quarter earnings of $1.10 per share, down from the Zacks Consensus Estimate of $1.15 and the last year’s earnings of $1.27. The quarterly decline in earnings was the result of higher pension expenses.
For the full-year 2009, the company’s operating earnings were $4.64, representing a negative earnings surprise of 1.1% from the Zacks Consensus Estimate of $4.69 and down 3.1% from the year-ago earnings of $4.79. The decline was primarily due to lower cigarette volumes, higher pension and legal expense, and lower premium moist-snuff margins offset by higher pricing and gains in productivity and moist-snuff volume.
Reynolds’ net sales in the reported quarter and in 2009 declined 3.7% and 4.8%, respectively, to $2.1 billion and $8.4 billion. The company’s adjusted operating income in the quarter was $563 million, down 13.9% from the year-ago levels. Operating income for the full-year declined 2.5% to $2.4 billion.
Segment-wise, R.J. Reynolds’ adjusted operating income was $487 million (down 9.8%) and $2.03 billion (down 1.4%) for the fourth quarter and the full-year 2009, respectively. However, operating margins in 2009 improved to 27.7%, a gain of 1.1 percentage points from the year-ago period, driven by higher pricing, lower promotional expense and continued productivity gains, which more than offset the impact of lower cigarette volume and increased legal expense.
R.J. Reynolds’ total cigarette market share for the full year was 28.3%, down 0.1 share points from the prior year. For the fourth quarter, R.J. Reynolds’ cigarette share was 28.5%, up 0.2 share points from the prior-year quarter.
In the quarter, Conwood’s adjusted operating income was $83 million, down 16.0% from the last year, driven by lower margins on Kodiak and increased promotional spending due to new product introductions, excise tax increases and intense competitive activity. For the full year, Conwood’s adjusted operating income was $352 million, down 6.0% from 2008, primarily driven by Kodiak’s lower margins.
Reynolds American continues to maintain a strong balance sheet, ending the year with $2.7 billion in cash balances. During 2009, the company repaid $200 million in debt and contributed $300 million to the pension plan.
Furthermore, the company increased its quarterly dividend by 5 cents to 90 cents per share, reflecting the company’s commitment to maintain shareholder returns. The annualized dividend of $3.60 per share maintains the company’s policy of returning about 75% of net income to its shareholders in the form of dividends.
Going forward, the company expects to deliver EPS in the range of $4.80 to $5.00 in 2010, up from 2009 EPS of $4.64.
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