If you're anything like me, you enjoy nothing more in life than kicking back with a pack of Kools and reading an earnings report. My plans were foiled by Reynolds American's
Reynolds' comparable earnings per share dropped 10% from last year, and management lowered guidance for the year. That's enough to give any investor a coughing fit. If the results seem familiar, Altria
For Fools paying attention to first-quarter earnings, this has been a constant theme across consumer products. Iconic American companies such as Hershey
It's not news that Reynolds faces a declining domestic market for cigarettes. An industrywide decline of 3.3% year over year was not shocking. Reynolds' overall shipments dramatically underperformed the market, however, dropping a whopping 12%.
Reynolds' so-called "Growth Brands" even fell short of the industry shipment average, declining 6%. If this keeps up, management should probably change the brands' label -- may I suggest "brands that are expected to decline slower than our other brands"? Then again, this industry's track record on truth in labeling is spotty at best.
Reynolds' non-growth brands declined 16%, which management attributed to "older, more price-sensitive consumers" who were "disproportionately affected by ongoing economic pressures." If even Grandpa's cutting back on the Winstons, I think there's something very, very wrong with the American economy.
This may make doctors happy and Americans healthier, but it clearly does not bode well for the future of American cigarette companies. Though cigarette makers were long celebrated for inelastic demand curves and incredibly "loyal" consumers, years of massive taxation increases and cash-strapped American consumers may have decimated the prospects of an industry that was once hailed as a reliable shelter during economic storms. Investors looking to scratch their cigarette itch might want to check out Philip Morris International
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