Reynolds American Lights Up Q3

| About: Reynolds American, (RAI)

Reynolds American Inc. (NYSE:RAI) delivered robust third quarter results for 2010.

The company posted adjusted quarterly earnings of $1.35 per share surpassed the Zacks Consensus Estimate by a penny and year-ago earnings by 8.9%. On a reported basis, earnings grew 4.8% to $1.30 a share in the quarter.

The North Carolina-based manufacturer and distributor of cigarette and other tobacco products reaffirmed its fiscal 2010 adjusted earnings of $4.90 to $5.05 per share. This guidance excludes charges related to plant closings, expansion of R.J. Reynolds’ field trade marketing, health care and Canadian government settlements. The current Zacks Consensus Estimate of $4.99 is now at the middle of the guidance range.

Reynolds’ net sales in the reported quarter increased 4.0% to $2,239 million from $2,152 million in the year-ago quarter. Revenues were also above the Zacks Consensus Estimate of $2,198 million. Adjusted operating income came in at $686 million, a growth of 7.9% over $636 million recorded in the prior-year quarter.

Segment Details

R.J. Reynolds: Segment revenue grew to $1,917 million in the quarter compared with $1,867 million in the prior-year quarter. R.J. Reynolds’ cigarette market share was flat year-over-year in the quarter, attributed to losses on non-core brands as well as private label brands, which the company continues to de-emphasize.

Compared to the year-ago quarter, the segment’s adjusted operating income grew 7.5% to $572 million in the reported quarter, reflecting volume gains, higher cigarette pricing, productivity gains and lower promotional spending.

American Snuff: Segment revenue increased to $185 million in the quarter compared with $177 million in the prior-year quarter. Adjusted operating income grew 9.0% to $102 million in the quarter, attributable to higher moist-snuff pricing and volume.

Financial Update and Dividend Increase

Reynolds American ended the quarter with cash and cash equivalents of $2.3 billion and repaid 300 million of debt.

The board of directors also increased the dividend by 8.9%, reflecting an increase of 32 cents in the annualized dividend to $3.92 from $3.60.

Zacks Rank

Reynolds America’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation.