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RJ Reynolds Profit More Than Doubles After Restructuring

By Reuters
Published | Updated

NEW YORK – Quarterly profit at R.J. Reynolds Tobacco Holdings Inc. (search) more than doubled, driven by a restructuring late last year, although sales fell, the company's new corporate parent said on Monday.

The parent company, Reynolds American Inc. (RAI), was formed on July 30 from the combination of the U.S. tobacco businesses of R.J. Reynolds Tobacco Holdings and British American Tobacco Plc (search). It reported the results of R.J. Reynolds as a separate entity.

R.J. Reynolds, whose two main brands are Camel and Salem, earned $151 million, or $1.77 per share, in the second quarter, up from $70 million.

Reynolds American Inc. shares were up $2.55, or 3.5 percent, at $74.50 on the New York Stock Exchange (search).

Smith Barney analyst Bonnie Herzog, who has a "buy" rating on the shares, said she expected the stock rise since Reynolds American will have a higher weighting in the S&P 500 index, "which could result in possible demand from index investors of around 5 million shares."

Reynolds American, based in Winston-Salem, N. C., is the No. 2 U.S. cigarette maker behind Altria Group Inc.'s (MO) Philip Morris USA.

The deal to combine R.J. Reynolds and BAT'S Brown & Williamson Tobacco Corp. (search) was announced in October 2003, a month after R.J. Reynolds unveiled plans to slash 40 percent of its work force and focus on marketing Camel and Salem.

Herzog said the second-quarter results showed again that "RJR's restructuring efforts continue to pay off."

Andrew Schindler, who was chairman and chief executive of R.J. Reynolds and is now executive chairman of Reynolds American, said the company is well on the way to achieving its goal of $1 billion in cost savings by the end of 2005.

Schindler said he is confident the company will achieve $550 million to $600 million in merger-related savings within about two years.

Reynolds American said it expects to provide 2004 earnings guidance no later than mid-September. Its board is scheduled to meet for the first time in the next couple of weeks and is expected to discuss dividends.