RICHMOND, Va. -- Reynolds American Inc. said Tuesday that its first-quarter net income jumped 88 percent as higher prices and lower expenses from a longstanding legal settlement offset a decline in cigarette sales.
The nation's second-biggest tobacco company earned $508 million, or 92 cents per share, for the quarter ended March 31, up from $270 million, or 47 cents per share, a year ago.
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Adjusted earnings were 72 cents per share, beating Wall Street expectations by three cents. That excludes a benefit of 21 cents per share in credits for disputed payments under the 1998 Master Settlement Agreement in which some cigarette makers are paying states for smoking-related health care costs. The Winston-Salem, N.C.-based company also adjusted for one-time implementation costs.
The maker of Camel, Pall Mall and Natural American Spirit cigarettes said revenue excluding excise taxes fell nearly 3 percent to $1.88 billion. Analysts polled by FactSet expected $1.91 billion.
Its shares fell 79 cents, or 1.7 percent, to $45.03 in afternoon trading Tuesday. It shares have traded in a 52-week range of $39.45 to $46.93.
Reynolds American said higher gas prices and payroll taxes lowered consumers' disposable income during the quarter. Those factors, along with two fewer shipping days, reduced the number of cigarettes sold by its R.J. Reynolds Tobacco subsidiary by about 9 percent during the quarter to 14.9 billion cigarettes, compared with its estimate of a total industry decline of 6 percent.
It sold 5.5 percent less of its Camel brand and Pall Mall volumes fell 2 percent. The brands account for more than 60 percent of Reynolds American's total cigarette volume.
Camel's market share increased 0.1 percentage points to 8.5 percent of the U.S. market, while Pall Mall's market share grew 0.5 percentage points to 9 percent.
The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it.
The number of Natural American Spirit cigarettes it sold grew nearly 15 percent to about 700 million cigarettes.
Reynolds American and other tobacco companies are also focusing on cigarette alternatives such as snuff and chewing tobacco for future sales growth as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.
Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose about 1 percent compared with a year ago. The brands had a 33 percent share of the U.S. retail market, which is tiny compared with cigarettes.
The company is making "excellent progress" in the development of its first electronic cigarette under the Vuse brand, CEO Daniel Delen said in a conference call with investors. It has begun limited distribution of the battery-powered devices heat a liquid nicotine solution, creating vapor that users inhale.
Additionally, the company said it is moving ahead with its nicotine gum under the Zonnic brand, which is meant to help people stop smoking. In 2009, Reynolds bought a Swedish company Niconovum AB, which makes nicotine gum, pouches and spray products. The test market that was initiated in Des Moines, Iowa, last September is the first of its products to be sold in the U.S.
Reynolds American kept its profit outlook for the year at $3.15 to $3.30 per share.
The company also said it spent $300 million to buy back 6.8 million shares during the quarter as part of a $2.5 billion share repurchase program. It has about $900 million remaining in that program.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.