UPDATE 5-Reynolds American profit disappoints, stock dips

(Recasts first paragraph; adds CEO and analyst comments, byline; updates stock action)

By Ben Klayman

CHICAGO, April 30 (Reuters) - Reynolds American Inc (RAI.N: Quote, Profile, Research, Stock Buzz) posted weaker-than-expected first-quarter profit on Wednesday due to declines in sales of cigarette brands on which it focuses less marketing and pressure from competitors amid the weak U.S. economy.

The maker of Camel cigarettes and Grizzly smokeless tobacco also cut its full-year profit forecast, citing the challenging economic environment. Its shares fell as much as 8 percent to a two-year low.

"The guidance downgrade ... is due to an increasingly competitive environment in cigarette and smokeless," JP Morgan analyst Erik Bloomquist wrote in a research note. He has a "neutral" rating on the stock.

Reynolds, which competes with Altria Group Inc's (MO.N: Quote, Profile, Research, Stock Buzz) Philip Morris USA cigarette unit and UST Inc's (UST.N: Quote, Profile, Research, Stock Buzz) smokeless tobacco businesses, said older, more price-sensitive customers of its R.J. Reynolds tobacco unit were disproportionately hurt by economic pressures that included higher cigarette prices.

Reynolds Chief Executive Susan Ivey said the company was disappointed in the results and the performance of R.J. Reynolds but added that it faced a number of challenges.

"We are ... continuing to see shifts between tobacco products and categories," she told analysts on a conference call, citing growth in such products as little cigars, roll-your-own cigarettes and moist snuff.

The tough economy has not led many people to quit smoking, but it has resulted in more demand for deep-discount cigarettes and lower-priced products, Ivey said. That has benefited the company's Conwood smokeless tobacco business.