Reynolds American Inc (RAI): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Reynolds' fourth-quarter 2013 earnings of $0.77 per share lagged the Zacks Consensus Estimate by 5.2% but increased 1.3% year over year. Profit improved on the back of higher cigarette and moist snuff pricing. Net sales however slipped 1.9% due to declining cigarette volumes. However, core brands like Camel, Pall Mall and Santa Fe gained market share backed by brand-building initiatives. Reynolds' continuous innovations in the smokeless and moist snuff products are helping it to maintain a dominant share in the smokeless category. Moreover, the company's advancement in the e-cigarette category with the Vuse brand is encouraging. However, the high excise tax imposed by governments around the world is pressuring the company's margins. Additionally, anti-smoking regulations remain a persistent overhang. Again the tobacco sector is facing declining volume for the past few quarters due to shift of demand from cigarettes to other non-tobacco products. We, therefore, prefer to stay on the sidelines

Overview: Headquartered in Winston-Salem, North Carolina, Reynolds American, producer of Camel cigarettes , Inc. (RAI) came into existence in 2004. Its subsidiaries include R. J. Reynolds Tobacco Company (RJR), American Snuff Company, LLC, Santa Fe Natural Tobacco Company, Inc. and Niconovum AB.
In Jul 2004, the U.S. business of Brown & Williamson Holdings, Inc. (B&W), an indirect, wholly owned subsidiary of British American Tobacco plc was combined with R. J. Reynolds Tobacco Company (RJR). This merger is generally referred to as the B&W business combination. Post the merger, B&W owns approximately 42% of Reynolds' outstanding common stock.
Reynolds' reportable segments comprise of RJR Tobacco, American Snuff and Santa Fe and All Other.
RJR Tobacco is a leading cigarette manufacturer, which operates mainly in the U.S. Its manufacturing facilities are located in the Winston-Salem area, known as the Tobaccoville manufacturing facility and the Whitaker Park complex. RJR Tobacco's largest selling cigarette brands Camel, Kool, Pall Mall, Doral and Winston are some of the best-selling cigarette brands in the U.S. RJR Tobacco also manages contract manufacturing of cigarette and tobacco products.
American Snuff is a leading smokeless tobacco product manufacturer in the U.S. It includes the primary operations of American Snuff Company, whose main products are its largest-selling moist snuff brands, Grizzly and Kodiak, Its manufacturing facilities are located in Memphis, Tennessee Clarksville, Tennessee Winston-Salem and Bowling Green, Kentucky. The American Snuff Company also makes loose-leaf tobacco (including Morgan's, Levi Garrett and Taylor's Pride brands), snuff (Garrett, Dental and Tube Rose brands) and an assortment of other smokeless tobacco products (including twist, moist and plug).
Santa Fe manufactures and markets cigarettes as well as other tobacco products under the Natural American Spirit brand. Its manufacturing facility is located in Oxford, North Carolina and its leased distribution center is located in Reno, Nevada.
Other segment describes the business of Reynolds subsidiary, Niconovum USA, which is a marketer of nicotine replacement therapy products in Sweden under the Zonnic brand name