Reynolds American Inc. (NYSE:RAI) Q3 2015 Earnings Conference Call - Final Transcript

Oct 27, 2015 • 09:00 am ET

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Reynolds American Inc. (NYSE:RAI) Q3 2015 Earnings Conference Call - Final Transcript

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Operator
operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Reynolds American Third Quarter Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Morris Moore, Vice President of Investor Relations, you may begin your conference.

Executive
Morris L. Moore

Good morning and thank you for joining our call. Today, we'll review Reynolds American's results for the third quarter and first nine months as well as our revised full-year outlook. As usual, our discussion will include adjusted results as management believes this provides better perspective on our underlying business performance. A reconciliation of reported to adjusted earnings is in our press release, which is available on our website at reynoldsamerican.com.

Joining me this morning are RAI's President and CEO, Susan Cameron and Andrew Gilchrist, our CFO.

(Forward-looking Statements)

And now, I'll turn the call over to Susan.

Executive
Susan M. Cameron

Thank you, Morris, and good morning everyone. As you know, it was a very busy quarter for us. And I'd like to start today with Reynolds American's results, which wrapped up a very strong first nine months. Our net sales, earnings and margins were all significantly higher in the third quarter driven by excellent performance at our operating companies and the impact of Newport's addition to the R.J. Reynolds portfolio.

Adjusted industry cigarette volumes declined by 0.8% in the quarter, with continued growth in the premium cigarette category. In the moist-snuff category, the environment remains competitive, and adult consumers continue to move back and forth between the various tobacco categories, modestly impacting the growth in moist-snuff volume.

As I said before, our operating companies have a key advantage in offering a diversified product portfolio across tobacco categories with a range of distinctive brands at different price points, and this broad portfolio is also aligned with the key consumer macro trends that are driving brand choice.

In addition, our company's strategy is to maximize the performance of the entire portfolio with each of their key brand playing a distinctive role. Our companies are successfully managing this dynamic interplay between categories and between their key brands and RAI is benefiting greatly from it. Of course, a major highlight of the quarter with the significant momentum on the Newport brand and a significant contribution to R.J. Reynolds profitability. The integration of Newport which was acquired in June continues to go very well. The reciprocal contract manufacturing with ITG will continue until later next year, but the transfer of equipment to the Tobaccoville facility is well underway.

Under the route to market agreement, no changes can be made to existing retail contracts until the middle of next month. The R.J. Reynolds is currently selling in new retail contracts and we are confident that Newport's expanded presence will drive further growth on the brand. The company's marketing and sales teams are also very focused on doing the necessary consumer