Reynolds American Inc. (RAI), the No. 2 U.S. cigarette maker, Tuesday posted a quarterly profit, compared with a year-earlier loss, helped by a restructuring and cost savings following the merger that formed the company last year.

Reynolds also detailed a new portfolio strategy, where it will move more marketing resources behind Kool and Camel cigarettes to boost sales of those higher-priced brands. The portfolio review was one of the key tasks for Reynolds after the July 30 combination of R.J. Reynolds Tobacco Co. (RJR) and British American Tobacco Plc's (BTI) Brown and Williamson unit.

Reynolds shares dipped less than 1 percent Tuesday morning.

The company posted a profit of $76 million, or 51 cents a share, in the fourth quarter, including several one-time items. That compares with a loss of $136 million, or $1.62 a share, a year earlier when it took restructuring charges.

Excluding one-time items, earnings were $1.29 a share, compared with the average analyst estimate of $1.26 a share, according to Robert Campignino, analyst at Prudential Equity Group.

Sales rose to $2 billion from $1.23 billion due to the inclusion of new brands from the merger.

But sales were up only 0.3 percent on a pro forma basis, which assumes the merger had occurred as of Jan. 1, 2003. On that basis, the company's sales of cigarettes in the United States fell 2.2 percent to 28.6 billion.

For 2005, the company forecast earnings of $6.55 to $6.95 a share. That includes $2.8 billion in payments for the master settlement agreement between tobacco companies and the states and for buyouts of quotas from tobacco farmers.

Reynolds said it expects the number of cigarettes sold to fall 6 percent to 8 percent as a result of its new marketing strategy, which focuses on higher-priced brands.

The company will also have a second tier of brands, called "selective support" brands. Those brands — Winston, Salem, Doral and Pall Mall — will receive limited marketing support aimed at keeping current customers.

Other brands will receive no marketing support and the company expects volume in those brands to decline.

Operating income is forecast at $1.65 billion to $1.75 billion.

"That 2005 "guidance looks to be a little light versus our expectations, and the company's volume guidance is a bit disappointing as well," Campignino, who rates the stock "neutral weight," wrote in a research report.

Reynolds shares were down 64 cents, at $84.36, Tuesday on the New York Stock Exchange (search).