* EPS $1.27 ex items; Wall Street view $1.15
* Cigarette volume down 6.3 percent
* Shares up 2.7 pct
(Adds company comments, share activity)
By Brad Dorfman
CHICAGO, Feb 11 Reynolds American Inc (RAI.N)
posted a higher-than-expected quarterly profit on Wednesday, as
its Camel and Pall Mall cigarettes increased market share,
though it shipped fewer cigarettes in the period.
But the company, whose shares rose more than 2 percent,
declined to give a forecast for 2009 earnings until it can
determine the impact of a 61 cent a pack increase in the
federal tax on cigarettes.
"The unprecedented magnitude of the federal tax increase
along with a deteriorating economy makes it difficult to
predict the impact on volume and earnings," chief Executive
Susan Ivey said during a conference call with analysts. "In
addition, many states are looking at tobacco taxes to make up
That federal tax increase to $1 per pack, as well as any
state tax increases in a recession, could pressure smokers to
trade down to cheaper brands and limit the ability of tobacco
companies to increase prices.
The company's Conwood smokeless tobacco division,
meanwhile, may face greater competition from Marlboro cigarette
maker Altria Group Inc (MO.N), which bought smokeless tobacco
maker UST in January. Altria is expected to spend more money on
promotion of UST's Skoal and Copenhagen brands.
Reynolds profit fell to $258 million, or 89 cents a share,
in the fourth quarter, from $297 million, or $1.01 a share, a
Excluding trademark impairment charges and other one-time
items, Reynolds earned $1.27 a share, up 10.4 percent from a
year earlier. On that basis, analysts on average forecast $1.15
a share, according to Reuters Estimates.
Sales fell 2.4 percent to $2.18 billion.
Reynolds shipped 21.6 billion cigarettes in the fourth
quarter, down 6.3 percent from a year earlier.
Reynolds also said it set aside about $35 million less than
a year earlier for its annual settlement payment to the U.S.
states due to a drop in the consumer price index, which is a
factor in determining the size of the payments.
Reynolds shares were up $1.05 at $39.91 in afternoon
trading on the New York Stock Exchange.
(Reporting by Brad Dorfman; editing by John Wallace and Steve