RJ Reynolds Tob (NYSE:RJR)
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RJR Reports First Quarter 2004 Results; Increases Full Year
Guidance
WINSTON-SALEM, N.C., April 27 /PRNewswire-FirstCall/ -- R.J. Reynolds Tobacco
Holdings, Inc. today reported significantly higher net income for the first
quarter of 2004 compared with the prior-year quarter, and adjusted its
full-year guidance to reflect a more favorable earnings outlook. RJR said the
earnings growth and improved outlook are the result of fundamental changes in
the company's strategies and cost structure associated with the restructuring
RJR announced in September 2003. RJR reported the following results for the
first quarter of 2004:
GAAP First Quarter Highlights
(dollars in millions, except per-share amounts)
1st Quarter
2004 2003 % Change
Net sales $ 1,218 $1,218 0%
Operating income(1) $221 $135 63.7%
Net income $122 $71 71.8%
Net income per diluted share $1.43 $0.84 70.2%
(1)Operating results include the net benefit of a $9 million reversal for
previously recorded restructuring charges. The reversal is primarily
related to the company's decision to retain approximately 750 field
sales positions that had previously been identified for elimination as
part of the September 2003 restructuring. Operating results also
include a $33 million charge related to RJR Tobacco's settlement of
the tobacco growers' lawsuit.
Balance Sheet Highlights (as of March 31, 2004)
- Cash and short-term
investments: $1.5 billion
- Debt: $1.7 billion
- Equity: $3.1 billion
- Dividend: $0.95 per share quarterly; $3.80 per share annualized
Discussion of First Quarter 2004 Results
"Our first-quarter results demonstrate that RJR is on the right path to
strengthen its business and improve profitability," said Andrew J. Schindler,
chairman and chief executive officer of RJR. "We are making excellent progress
against our restructuring goals, and we are capturing cost-savings at an
accelerated rate. As a result, we are increasing our full-year earnings
guidance.
"We currently estimate that we will achieve $450 million in savings in 2004,
rather than our original estimate of $400 million for the year," Schindler
said. "Those savings, in addition to the $400 million in savings we achieved
in 2003, demonstrate that we are on track to reach our cost-savings goal of $1
billion."
Schindler said that the proposed combination of RJR Tobacco's business with the
U.S. operations of the nation's No. 3 tobacco company, Brown & Williamson
Tobacco Corp., is still expected to close mid-year, upon shareholder approval.
Efforts to obtain rulings by the Federal Trade Commission and other regulatory
agencies are proceeding on schedule, and RJR continues to believe that the deal
should be approved as structured.
"Plans to integrate the two businesses with Reynolds American Inc. as the new
parent company are progressing well," Schindler said. He noted that the
proposed business combination is expected to yield at least $500 million in
synergies once full integration is complete -- 18 to 24 months after the deal
closes.
Financial Results
RJR's first-quarter net sales were $1.22 billion, level with the year-ago
quarter, as the effects of lower volume were offset by the net benefit of
modifications made in marketplace programs and an improved full-price to
savings-brand mix.
Operating income increased to $221 million from $135 million in the prior- year
quarter, primarily due to cost-reduction programs throughout the company.
Operating results also benefited from a net $9 million reversal of previously
recorded restructuring charges. The reversal is primarily related to the
company's decision to retain approximately 750 field sales positions that had
previously been identified for elimination as part of the September 2003
restructuring. Included in operating income is a $33 million charge related
to RJR Tobacco's settlement of the tobacco growers' lawsuit.
Net income was $122 million, up $51 million from the prior-year period due to
the factors discussed above. Earnings per diluted share were $1.43, compared
with $0.84 in the first quarter of 2003.
Volume and Product Mix During First Quarter
RJR Shipment Volume
The following table summarizes RJR's first-quarter 2004 U.S. cigarette shipment
volume, in billions of units:
1st Quarter
%
2004 2003 Change(1)
RJR Tobacco volume 17.9 19.1 -6.4%
RJR Tobacco total full-price 11.6 11.4 +2.1%
RJR Tobacco total savings 6.3 7.7 -19.0%
SFNTC volume(2) 0.3 0.3 +7.2%
RJR total domestic volume(3) 18.2 19.4 -6.3%
(1) Percentages are calculated from unrounded volume numbers.
(2) The 7.2% increase in SFNTC volume is based on actual volume of 279
million units in the first quarter of 2004, compared with 260 million
units during the first quarter of 2003. This does not include
international volume of 147 million units in the first quarter of
2004 and 135 million units in the first quarter of 2003.
(3) This does not include Puerto Rico cigarette volume of 280 million
units in the first quarter of 2004, compared with 295 million units
during the first quarter of 2003.
RJR Tobacco's volume declined 6.4 percent in the first quarter, driven by
declines in its savings business. The company's full-price volume was up 2.1
percent on the strength of Camel's filtered styles, which were up 9.1 percent
compared with the first quarter of 2003. RJR Tobacco's savings volume was down
19.0 percent, due to declines on Doral and other savings brands. In the first
quarter, RJR Tobacco's full-price to savings-brand mix was 65.0 percent, up
from 59.5 percent in the first quarter of 2003.
Based on information from Management Science Associates, Inc. (MSAi), total
U.S. industry cigarette volume in the first quarter was 85.1 billion units,
down 3.5 percent from 88.2 billion units in first-quarter 2003. The industry
full-price mix for the first quarter was 74.6 percent, up from 72.9 percent in
the first quarter of 2003. RJR Tobacco continues to believe the volume
associated with smaller, deep-discount manufacturers is not fully reflected in
MSAi's reported numbers.
Brand Performance
In the first quarter, RJR Tobacco's total share of U.S. retail cigarette sales
was 21.53 percent, down 1.39 share points from the first quarter of 2003. This
decrease was driven by savings declines of 1.08 points.
Camel, RJR Tobacco's largest brand, showed strength in the first quarter, with
performance equaling that of a particularly strong year-ago quarter. Salem, RJR
Tobacco's other growth brand, grew 0.28 points compared to the first quarter of
2003, based on the continuing benefit of the brand's 2003 repositioning.
Retail share of RJR Tobacco's limited-investment brands - Winston and Doral -
declined, reflecting the company's objective to optimize the profitability of
those brands over time.
During the first quarter, Santa Fe Natural Tobacco Company's Natural America
Spirit brand delivered volume, share and profit growth.
Full Year 2004 Earnings Outlook
"We now expect to capture cost savings of approximately $450 million in 2004,
and we are increasing our operating income guidance for the year," said Dianne
M. Neal, RJR's chief financial officer. "Including restructuring charges and
the settlement of the tobacco growers' lawsuit, estimated at $35 million," she
said, "we expect to generate operating income of $740 million to $790 million,
net income of $405 million to $435 million, and diluted EPS of $4.75 to $5.10.
We expect to end the year with $1.6 billion in cash."
Neal said the company's new guidance does not include the effect of the
proposed RJR Tobacco/B&W business combination.
Conference Call Webcast Today
R.J. Reynolds Tobacco Holdings, Inc. will webcast a conference call to discuss
first-quarter financial results at 10 a.m. Eastern Daylight Time on Tuesday,
April 27. The call will be available live online on a listen-only basis. To
register for the call, please visit the "Investors" section of
http://www.rjrholdings.com/ . A replay of the call will be available on the
site for seven days. Remarks made during the conference call will be current at
the time of the call and will not be updated to reflect subsequent material
developments. Although news media representatives will not be permitted to ask
questions during the call, they are welcome to monitor the remarks on a
listen-only basis. Following the call, media representatives may direct
inquiries to Seth Moskowitz at (336) 741-7698.
Statements included in this news release which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward- looking statements
regarding RJR's future performance and financial results include risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These risks include the
substantial and increasing regulation and taxation of the cigarette industry;
various legal actions, proceedings and claims relating to the sale,
distribution, manufacture, development, advertising, marketing and claimed
health effects of cigarettes that are pending or may be instituted against RJR
or its subsidiaries; the substantial payment obligations and limitations on the
advertising and marketing of cigarettes under various litigation settlement
agreements; the continuing decline in volume in the domestic cigarette
industry; competition from other cigarette manufacturers, including increased
promotional activities and the growth of the deep-discount category; the
success or failure of new product innovations and acquisitions; the
responsiveness of both the trade and consumers to new products and marketing
and promotional programs; any potential costs or savings associated with
realigning the cost structure of RJR and its subsidiaries; the ability to
achieve efficiencies in manufacturing and distribution operations without
negatively affecting sales; the cost of tobacco leaf and other raw materials
and commodities used in products; the effect of market conditions on the
performance of pension assets and the return on corporate cash; and the ratings
of RJR securities. In addition, RJR can give no assurance that the proposed
formation of Reynolds American Inc., the combination of RJR Tobacco and the
U.S. assets, liabilities and operations of Brown & Williamson Tobacco
Corporation, and the related transactions, will be consummated, or if
consummated, that any expectations relating thereto will be realized. Factors
that could affect whether these transactions are consummated include obtaining
approvals from U.S. and European regulatory authorities and RJR shareholders,
the receipt of satisfactory Internal Revenue Service rulings and the
satisfaction or waiver of certain other conditions. Due to these uncertainties
and risks, undue reliance should not be placed on these forward- looking
statements, which speak only as of the date of this news release. Except as
provided by federal securities laws, RJR is not required to publicly update or
revise any forward-looking statement, whether as a result of new information,
future events or otherwise.
Additional Information and Where To Find It
Reynolds American Inc., the holding company to be formed in the proposed
business combination, has filed a registration statement on Form S-4 that
includes a preliminary proxy statement/prospectus and other relevant documents
in connection with the proposed business combination. When the registration
statement becomes effective, a final proxy statement/prospectus and other
relevant documents will be mailed to RJR shareholders. INVESTORS AND SECURITY
HOLDERS OF RJR ARE ADVISED TO READ THESE DOCUMENTS WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED BUSINESS
COMBINATION. Documents filed by RJR and Reynolds American Inc. with the SEC
can be found at the SEC's Web site at http://www.sec.gov/ . Once available,
free copies of the final prospectus/proxy statement, as well as RJR's and
Reynolds American Inc.'s related filings with the SEC, also may be obtained
from RJR by directing a request to R.J. Reynolds Tobacco Holdings, Inc. at P.O.
Box 2866, Winston-Salem, NC 27102-2866, Attn.: Office of Investor Relations,
or by telephone at (336) 741-5165 or on RJR's Web site,
http://www.rjrholdings.com/ .
R.J. Reynolds Tobacco Holdings, Inc. is the parent company of R.J. Reynolds
Tobacco Company and Santa Fe Natural Tobacco Company, Inc. R.J. Reynolds
Tobacco Company is the second-largest tobacco company in the United States,
manufacturing about one of every four cigarettes sold in the United States.
Reynolds Tobacco's product line includes four of the nation's 10 best-selling
cigarette brands: Camel, Winston, Salem and Doral. Santa Fe Natural Tobacco
Company, Inc. manufactures Natural American Spirit cigarettes and other tobacco
products, and markets them both nationally and internationally. Copies of
RJR's news releases, annual reports, SEC filings and other financial materials
are available on the company's Web site, http://www.rjrholdings.com/ .
(financial tables follow)
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-GAAP
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31
2004 2003
Net sales $ 1,218 $ 1,218
Cost of products sold 711 749
Selling, general and administrative expenses 295 334
Restructuring charges (9) -
Operating income 221 135
Interest and debt expense 20 36
Interest income (5) (10)
Other (income) expense, net 5 (7)
Income before income taxes 201 116
Provision for income taxes 79 45
Net income $122 $71
Basic income per share $1.45 $0.84
Diluted income per share $1.43 $0.84
Basic weighted average shares, in thousands 84,274 84,031
Diluted weighted average shares, in thousands 85,238 84,952
Reconciliation of 2003 Results to 2004 Results
(Dollars in Millions)
(Unaudited)
First Quarter
Operating Net
Income Income
2003 Results $135 $71
Net reversal of restructuring
and impairment charges 9 6
Settlement of tobacco growers' lawsuit (33) (20)
Operations 110 65
2004 Results $221 $122
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
March 31, December 31,
2004 2003
Assets
Cash and cash equivalents $1,348 $1,523
Short-term investments 108 107
Other current assets 1,680 1,701
Trademarks, net 1,759 1,759
Goodwill, net 3,288 3,292
Other noncurrent assets 1,294 1,295
$9,477 $9,677
Liabilities and stockholders' equity
Tobacco settlement and related accruals $1,548 $1,629
Current maturities of long-term debt 56 56
Other current liabilities 966 1,180
Long-term debt (less current maturities) 1,692 1,671
Deferred income taxes 789 806
Long-term retirement benefits 1,068 1,034
Other noncurrent liabilities 250 244
Stockholders' equity 3,108 3,057
$9,477 $9,677
DATASOURCE: R.J. Reynolds Tobacco Holdings, Inc.
CONTACT: Investors, Carole Biermann Wehn, +1-336-741-5182, or Media, Seth
Moskowitz, +1-336-741-7698, both of R.J. Reynolds
Web site: http://www.rjrholdings.com/