Reynolds American Inc. again rode a strong wave of consumer demand for its Pall Mall cigarette and Grizzly moist-snuff brands to a profitable quarter. The manufacturer said Thursday that it posted $353 million in net income in the first quarter, primarily caused by Pall Mall’s rise to the No. 3 U.S. cigarette brand and Grizzly’s expanding of its top moist-snuff market share.
Even though Camel remains the brand face of Reynolds, its sales have hit a plateau in recent quarters as adult smokers have turned to lower-priced cigarettes, such as Pall Mall, during the economic downturn.
Pall Mall’s cigarette shipment volume was at 5.1 billion sticks — up from 4.4 billion a year ago, while Camel’s volume was unchanged at 4.7 billion sticks.
Pall Mall had an 8.5 percent market share in the first quarter, up from 6.5 percent in the first quarter of 2010. Camel’s market share was 7.8 percent, up from 7.1 percent a year ago.
The last time Camel didn’t hold the top cigarette market share for Reynolds was in 2002, when Doral was its best-seller.
“Reynolds American has made a solid start to the year, delivering higher first-quarter earnings driven by continued momentum in its operating companies’ key brands,” said Daniel Delen, who took over as president and chief executive March 1.
Because high gasoline prices have left most consumers with less disposable income, analysts said that Pall Mall’s move over Camel could be more than a short-term shift.
“I have no hesitation in saying that Pall Mall is going to continue enjoying robust growth,” said Stephen Pope, an industry analyst and the managing partner of Spotlight Ideas in England.
“In the last few quarters, it has become a well-established, first-preference choice.”
That includes, Pope said, chipping away at the market share of Marlboro, the nation’s long-standing top cigarette. Philip Morris USA reported Wednesday that Marlboro dropped 0.5 percentage points in market share to 42.2 percent and sold 5.7 percent fewer cigarettes in the quarter.
“Marlboro almost feels like a brand whose identity and imagery is tired, and almost a pastiche from another era,” Pope said.
Grizzly increased its top moist-snuff market share to 27.1 percent from 25.6 percent a year ago. It’s facing significant competition from Copenhagen and Skoal, particularly when Philip Morris offers price discounts.
“Grizzly is in a more complex market space and will have to work harder than ever to maintain share, let alone grow,” Pope said.
Overall, cigarette shipment volume declined 5.2 percent from a year ago. However, accounting for its elimination of de-emphasized private-label brands, the volume was down 3 percent. By comparison, the industry volume was down 3.4 percent.
Reynolds reaffirmed its estimated earnings for fiscal 2011 would be in the range of $2.60 to $2.70 a share, excluding costs for closing plants, including Whitaker Park, and tax issues.