The ability to halt — at least for a quarter — an overall sales decline enabled Reynolds American Inc. to post Wednesday a 16 percent increase in profit to $304 million in the fourth quarter.
The earnings announcement came as Reynolds confirmed that it had begun cutting an unspecified number of production jobs at its Tobaccoville plant.
The company's overall fourth-quarter sales were at $2.08 billion, essentially unchanged from a year ago. Reynolds' Pall Mall cigarette and Grizzly moist-snuff brands gained market share.
But Reynolds' overall cigarette market share was down 1.1 percentage points to 27 percent compared with a year ago. Its cigarette volume was down 7.4 percent for the quarter and 5.1 percent for 2011, compared with an industry decline of 3.5 percent for the year.
The company said the cigarette volume was affected by rivals aggressively promoting brand line extension, such as Philip Morris USA with Marlboro.
"R.J. Reynolds remains focused on balancing volume, share and profitability over the long term," said Daniel Delen, Reynolds' president and chief executive.
"In 2012, we intend to sustain our operating companies' key-brand momentum, invest in innovation and have the financial flexibility to take advantage of competitive opportunities."
Reynolds said 5 cents of an overall 20-cent per share in charges was related to taking a $48 million trademark impairment charge on some of its cigarette brands, mostly Doral.
Pall Mall's market share rose 0.3 percentage point in the past 12 months to 8.6 percent, unchanged from the third quarter.
Even though Camel remains the brand face of Reynolds, its sales have hit a plateau in recent quarters as adult smokers have turned to lower-priced cigarettes, such as Pall Mall, during the rough economy. Camel's market share was 8 percent, unchanged from a year ago.
Because high gasoline prices have left most consumers with less disposable income, analysts said, Pall Mall's move over Camel could be more than a short-term shift.
The company said its Camel Snus brand has captured 75 percent of the market share in the category, up from 70 percent in the third quarter.
Grizzly increased its top moist-snuff market share to 28.4 percent from 27.1 percent a year ago. It's facing significant competition from Copenhagen and Skoal, particularly as Philip Morris offers price discounts.
Santa Fe Natural Tobacco Co. Inc. had a 22 percent increase in revenue to $111 million, while its operating income was up 52 percent to $50 million. It is the first quarter in which Reynolds listed Santa Fe's performance as a separate segment.
For the full year, Reynolds had $1.4 billion in net income, up 25.4 percent from fiscal 2010. Diluted earnings per share were up 48 cents to $2.40 cents.
The company repurchased 6.7 million shares during the quarter at a value of $276 million as part of a $2.5 billion share repurchase program.
Bonnie Herzog, an analyst with Wells Fargo Securities, said Reynolds exceeded her expectations with its earnings performance. She was encouraged that Reynolds is providing separate financial insight on Santa Fe. "The hidden gem is no longer hidden," she said.
"We are impressed with Reynolds' innovation, execution, leadership and methodical approach to building long-term sustainable growth as a total tobacco company."
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