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Actionable news in RAI: REYNOLDS AMERICAN Inc,

Reynolds American: Rai

The following excerpt is from the company's SEC filing.

drives higher 3Q15 earnings;

Company tightens full-year earnings guidance

Third Quarter 2015 At a Glance

Reported EPS: Third quarter at $0.46, up 4.5 percent from prior-year quarter; nine months at $2.45, up 99.2 percent

Adjusted EPS: Third quarter at $0.55, up 17.0 percent from prior-year quarter; nine months at $1.50, up 18.1 percent

Excludes charges for implementation costs, asset impairment and exit costs and other special items*

Other 3Q15 highlights:

Natural American Spirit business outside the U.S. to be sold to Japan Tobacco Group of companies (JT Group)

Vapor technology-sharing term sheet signed with British American Tobacco (Holdings) Limited (BAT)

RAI selected to 2015-2016 Dow Jones Sustainability North America Index

R.J. Reynolds Tobacco Company and N.Y. reached October settlement on Non-Participating Manufacturer (NPM) disputed payments

RAI tightens 2015 guidance: Adjusted EPS range of $1.94 to $2.00

Excludes the above-referenced items

* Special items are detailed in Schedule 2 and include charges for transaction-related and financing costs for the Lorillard, Inc. (Lorillard) acquisition and related divestiture,

progeny cases, and tobacco-related and other litigation, a benefit from the 2003 NPM adjustment claim and a gain on divestiture, as well as a 2014 gain on discontinued operations and a one-time benefit from the NPM Partial Settlement.

All references in this release to reported numbers refer to GAAP measurements; all adjusted numbers are non-GAAP, as defined in Schedules 2 and 3 of this release, which reconcile reported to adjusted results.

Reynolds American Inc. (NYSE: RAI) today announced third-quarter 2015 reported EPS of $0.46, up 4.5 percent from the prior-year quarter, benefitting from higher cigarette and moist-snuff pricing and volume, as well as the expiration of the federal tobacco-quota buyout.

Adjusted third-quarter EPS was $0.55, up 17.0 percent. Adjusted results exclude charges for implementation costs, and asset impairment and exit costs as detailed in Schedule 2.

For the first nine months of 2015, reported EPS was $2.45, up 99.2 percent from the prior-year period.

Nine-month adjusted EPS was $1.50, up 18.1 percent from the prior-year period. This excludes the above-referenced items, as well as charges for transaction-related and financing costs for the Lorillard acquisition and related divestiture,

progeny lawsuits, and tobacco-related and other litigation, and a benefit from the 2003 NPM adjustment claim and a gain on divestiture.

RAI tightened 2015 adjusted EPS guidance to a range of $1.94 to $2.00, up 13 percent to 17 percent from 2014s adjusted EPS of $1.71. Guidance excludes the above-referenced items.

Third Quarter 2015 Financial Results Highlights*

(unaudited)

(all dollars in millions, except per-share amounts;

for reconciliations, including GAAP to non-GAAP, see Schedules 2 and 3)

For the Three Months

Ended Sept. 30

For the Nine Months

Ended Sept. 30

Change

Net sales

Operating income

Reported (GAAP)

Adjusted (Non-GAAP)

Net income

Net income per diluted share

*Includes the Newport brand and excludes the Winston, KOOL and Salem brands for the period June 12, 2015, to Sept. 30, 2015, following the Lorillard acquisition and related divestiture.

MANAGEMENTS PERSPECTIVE

Overview

Our operating companies delivered excellent key-brand performance in the third quarter, and that helped drive further gains in Reynolds Americans net sales, earnings and margin, said Susan M. Cameron, president and chief executive officer of RAI.

In addition to these strong results, Im pleased to report that the integration of Newport is going smoothly, Cameron said. Even with the route to market restrictions on retail merchandising in place through mid-November, Newport is demonstrating solid marketplace momentum, and R.J. Reynolds consumer marketing and sales teams are focused on identifying additional growth opportunities for the brand.

R.J. Reynolds Vapor Companys VUSE Digital Vapor Cigarette also performed well in the third quarter and remains the best-selling e-cigarette in the convenience / gas channel. Four additional styles of VUSE were expanded nationally at the end of September, providing a broader variety of options for adult tobacco consumers, Cameron said.

Other developments during the quarter include:

A definitive agreement to sell the Natural American Spirit business outside the U.S. to JT Group for $5 billion;

A vapor technology-sharing and licensing term sheet signed between RAI and BAT;

The consolidation of VUSE manufacturing at R.J. Reynolds Tobaccoville facility; and,

RAIs selection again to the Dow Jones Sustainability North America Index.

In addition, R.J. Reynolds reached a settlement on Oct. 20 with the state of New York on NPM disputed payments.

RAI and its operating companies are focused on initiatives across a broad front that are advancing our transforming tobacco strategy while creating additional value for our shareholders, Cameron said. Theres still significant work to be done in our integration, but were making great progress.

With a successful third quarter and nine months now behind it, RAI has tightened its adjusted earnings growth for the full year to a range of 13 percent to 17 percent over 2014s adjusted earnings.

COMBUSTIBLES

Total RAI operating companies domestic cigarette volumes increased 29.5 percent in the third quarter, benefitting from the addition of the Newport brand. Industry cigarette volume declined 2.2 percent during the period. When adjusted for wholesale inventory changes, industry shipments were down about 0.8 percent.

Total RAI operating companies domestic retail cigarette market share increased 0.3 percentage points to 33.9 percent in the third quarter, and 0.2 percentage points to 33.8 percent for the nine-month period.

RJR Tobacco

RJR Tobaccos reported third-quarter operating income increased 54.4 percent from the prior-year quarter, to $1.1 billion, benefiting from the addition of the Newport brand, higher cigarette pricing and the expiration of the federal tobacco-quota buyout program last year.

Adjusted third-quarter operating income was $1.2 billion, up 64.6 percent. Adjusted results exclude charges for implementation costs and

progeny lawsuits.

This brought the companys reported nine-month operating income to $2.4 billion, up 26.0 percent from the prior-year period.

Adjusted nine-month operating income was $2.7 billion, up 35.3 percent. Adjusted results exclude the above-referenced items, as well as a benefit from the 2003 NPM adjustment claim and charges for tobacco-related and other litigation.

RJR Tobaccos adjusted third-quarter operating margin increased 5.1 percentage points from the prior-year quarter, to 46.7 percent, bringing the adjusted nine-month operating margin to 44.3 percent, up 5.1 percentage points.

RJR Tobaccos retail market share is reflected on a pro-forma basis for the companys new brand portfolio following the Lorillard acquisition and the divestiture to ITG Brands, LLC (ITG). The companys total third-quarter cigarette retail market share was down 0.1 percentage points from the prior-year quarter, at 32.0 percent.

The companys third-quarter cigarette shipments were up 30.2 percent from the prior-year quarter, benefitting from the first full quarter of Newports incorporation into the companys cigarette portfolio.

RJR Tobaccos performance was driven by its powerful key brands in the third quarter. The combined retail market share of Newport, Camel and Pall Mall increased 0.2 percentage points from the prior-year quarter, to 29.4 percent. These brands now make up about 92 percent of RJR Tobaccos total cigarette retail market share.

Newport, the nations No. 1 menthol brand, demonstrated strong momentum in the third quarter, growing retail market share by 0.5 percentage points from the prior-year quarter, to 13.3 percent. Under terms of the route to market agreement in the consent decree reached with the U.S. Federal Trade Commission, no changes can be made to Newports retail merchandising until mid-November, when the company will add the brand to its new retail programs.

RJR Tobaccos Camel brand delivered steady performance in the quarter, and the company remains focused on building the brands equity. Camel maintained its third-quarter cigarette retail market share in line with the prior year quarter, at 8.3 percent.

Pall Mall, the nations No. 1 value brand, continued to play a key role in RJR Tobaccos cigarette portfolio strategy. Pall Malls third-quarter retail market share was down 0.3 percentage points from the prior-year quarter, at 7.8 percent, and was flat sequentially. The company continues to focus on balancing share and profitability for the brand.

Santa Fe

Santa Fe delivered another stellar performance, with third-quarter operating income increasing 23.2 percent from the prior-year quarter, to $120 million, benefiting from higher pricing and double-digit volume growth.

For the first nine months, the companys operating income increased 36.9 percent from the prior-year period, to $337 million.

Santa Fes third-quarter operating margin increased 0.7 percentage points from the prior-year quarter, to 55.2 percent, bringing nine-month operating margin to 55.5 percent, up 4.4 percentage points.

Natural American Spirit, the nations top-selling super-premium brand, is successfully expanding and broadening awareness and trial beyond its traditional strong presence in western U.S. markets. The brand, which offers distinctive natural tobacco styles, increased third-quarter retail market share by 0.3 percentage points from the prior-year quarter, to 1.9 percent, on volume growth of 19.3 percent.

MOIST SNUFF

American Snuff

American Snuffs third-quarter operating income increased 3.4 percent from the prior-year quarter, to $121 million, benefitting from higher pricing and volume, which was partially offset by the timing of marketing support activity.

For the first nine months, the companys operating income rose 12.4 percent, to $369 million.

American Snuffs third-quarter operating margin remained strong at 57.5 percent, and that brought nine-month operating margin to 58.6 percent, up 2.2 percentage points.

American Snuffs third-quarter moist-snuff retail market share rose 1.3 percentage points to 33.7 percent, on volume growth of 4.4 percent, which again outpaced industry growth of about 2.5 percent.

American Snuffs flagship brand, Grizzly, demonstrated continued momentum, with third-quarter retail market share increasing by 1.4 percentage points from the prior-year quarter, to 30.9 percent, on volume growth of 4.6 percent.

Grizzlys continued strong leadership position in the popular wintergreen style is being supported by its recently expanded Dark...


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