Tobacco company Reynolds American 2Q net income surges more than 35 pct on higher prices

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The nation's second-biggest tobacco company on Tuesday reported net income of $443 million, or 78 cents per share, for the three-month period ended June 30. That's up from $327 million, or 56 cents per share, a year ago when the company recorded charges related to a legal case that hurt its results. Adjusted earnings were 79 cents per share, beating analysts' expectations of 76 cents per share. Its shares fell 40 cents to $45.34 in morning trading.

 The maker of Camel, Pall Mall and Natural American Spirit brand cigarettes said revenue excluding excise taxes fell 4 percent to $2.18 billion from $2.27 billion a year ago. Analysts polled by FactSet expected revenue of $2.24 billion. The Winston-Salem, N.C., company said heavy promotional activity by its competitors drove its cigarette volumes down nearly 7 percent to 18.1 billion cigarettes, compared with an estimated total industry volume decline of 1.7 percent. Its R.J. Reynolds Tobacco subsidiary sold 4 percent less of its Camel brand and volumes of Pall Mall fell 3.6 percent. Camel's market share fell slightly to 8.3 percent of the U.S. market, while Pall Mall's market share fell 0.2 percentage points to 8.4 percent.

 The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it. Reynolds American and other tobacco companies are also focusing on cigarette alternatives such as snuff and chewing tobacco for future sales growth as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.

 Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose nearly 11 percent compared with a year ago. Its share of the U.S. retail market grew 1.7 percentage points to 32.4 percent. Reynolds American also reaffirmed its full-year adjusted earnings forecast in the range of $2.91 and $3.01 per share. Analysts expected earnings of $2.95 per share.