Reynolds American, Inc. Earnings Cheat Sheet: Margins Shrink as Net Income Drops

S&P 500 (NYSE:SPY) component Reynolds American, Inc. (NYSE:RAI) reported its results for the second quarter. Reynolds American, Inc. manufactures cigarettes and other tobacco products in the United States.

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Reynolds American Earnings Cheat Sheet for the Second Quarter

Results: Net income for the cigarette company fell to $304 million (67 cents per share) vs. $341 million (59 cents per share) a year earlier. This is a decline of 10.9% from the year earlier quarter.

Revenue: Rose 1% to $2.27 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: RAI fell short of the mean analyst estimate of 70 cents per share. Analysts were expecting revenue of $2.27 billion.

Quoting Management: “Reynolds American delivered solid second-quarter performance given the challenging competitive and economic environment, with further gains in its operating companies’ key cigarette and smokeless brands,” said Daniel M. Delen, RAI’s president and chief executive officer. “These results demonstrate the fundamental strength and resilience of our businesses, even as we focus on building innovative platforms for future growth,” he said. “Based on our first-half results, RAI has tightened its earnings projections and is on track to deliver mid- to high-single digit adjusted EPS growth for the full year.”

Key Stats:

Gross margin shrank 0.9 percentage point to 46.4%. The contraction appeared to be driven by increased costs, which rose 2.7% from the year earlier quarter while revenue rose 1%.

Last quarter’s profit decrease breaks a streak of three consecutive quarters of year-over-year profit increases. Net income rose more than fourfold in the first quarter from the year earlier, while the figure rose 43.7% in the fourth quarter of the last fiscal year and 5.2% in the third quarter of the last fiscal year.

The company fell short of estimates last quarter after being in line with expecations the quarter before with net income of 59 cents.

The company’s revenue has now risen for two straight quarters. In the first quarter, revenue increased 0.3% to $1.99 billion from the year earlier quarter.

Competitors to Watch: Altria Group, Inc. (NYSE:MO), Lorillard Inc. (NYSE:LO), Philip Morris Intl. Inc. (NYSE:PM), British American Tobacco (AMEX:BTI), Vector Group Ltd. (NYSE:VGR), Star Scientific, Inc. (NASDAQ:CIGX) and Universal Corporation (NYSE:UVV).

Don’t Miss Here’s Why Reynolds American is a Shareholder’s Dream Stock

(Source: Xignite Financials)