Reynolds American 2Q Profit Up 3.6%; View Raised

Reynolds American Inc.'s (RAI) second-quarter profit unexpectedly rose 3.6% as the tobacco company reported higher margins, which helped offset a decline in volume at its R.J. Reynolds Tobacco division.

Based on the company's first-half results, and more clarity in shipping patterns and the effects of a federal excise tax increase, the company raised its full-year per-share earnings view to a range of $4.40 to $4.60 a share from $4.15 to $4.45.

Last month, the Food and Drug Administration was given power to regulate tobacco products, giving the government authority to monitor smoking products. Reynolds and Lorillard Inc. (LO) claimed the legislation would give larger rival Altria Group Inc. (MO) advantages, but Fitch Ratings expects well-established brands will maintain their market shares and benefit from potentially greater advertising restrictions.

Fitch, though, warned launching new reduced-risk products could be difficult under the new restrictions. Reynolds, for instance, has been developing new smokeless products to boost sales, but its efforts could be snuffed out by the FDA.

The second-largest U.S. tobacco company behind Altria reported earnings of $377 million, or $1.29 a share, up from $364 million, or $1.23 a share, a year earlier. Revenue declined 3.8% to $2.25 billion.

Analysts polled by Thomson Reuters expected per-share earnings of $1.16 on revenue of $2.27 billion.

Gross margin rose to 46.6% from 44.2%.

The R.J. Reynolds Tobacco division's volume dropped 6%, but earnings rose 3.4%, as higher pricing and lower expenses were more than offset by lower cigarette volume and higher pension costs. Market share for growth brands grew 2.6 percentage points to 12.7%, while Camel's market share was flat at 7.5%.

Total R.J. Reynolds U.S. market share was up 0.4%, to 28.7%.

At the Conwood unit, which makes smokeless-tobacco brands Kodiak and Grizzly, earnings decreased 4.1% but volume rose 6.7% while market share for moist snuff shipments improved 2 percentage point to 29.4%.

On Wednesday, rival Altria reported its second-quarter profit grew a larger-than-expected 8.6% on its purchase of smokeless tobacco company UST as cigarette volumes continued to fall.

In premarket trading, Reynolds American's shares recently were up 0.8% to $41.50. The stock is up by about a third from its 52-week low in March.

Shanghai World Expo Says "No" to Tobacco Sponsor

rganizers of the Shanghai World Expo in 2010 have canceled a sponsorship deal for the China pavilion by Chinese cigarette maker Shanghai Tobacco in response to outcry by China’s growing anti-smoking lobby. Organizers of the Shanghai fair turned down a $29.3 million deal previously signed in May, the Shanghai Daily reported. That’s a huge amount considering how the U.S. is still struggling to raise $61 million from U.S. companies [though no tobacco companies]to build its USA National Pavilion. U.S. backers so far include 3M, Pepsi, GE, Yum Brands [KFC], Walmart, Intel and NYSE Euronext.

What’s surprising is that organizers of the Shanghai Expo ever consented to the tobacco deal in the first place. The world’s fair is themed “Better City, Better Life” with a strong focus on green technologies aimed at building a cleaner environment. But then again, the state-owned tobacco industry is hugely profitable and powerful. You can bet it will be lobbying hard against a proposed anti-smoking law to be discussed by the Shanghai Peoples Congress next month. Like the smoke-free Beijing Olympics, the Shanghai Expo has billed the Expo, which is open from May to October next year, as smoke-free. Smoking inside offices, restaurants and most public spaces is still legal in China.

China is one of the biggest growth markets for international tobacco companies such as Philip Morris International, maker of Marlboro cigarettes. For more on what it’s doing in China have a look at the cover story Nanette Byrnes and I wrote for BusinessWeek earlier this year. China has about about 350 million smokers, accounting for one third of the world’s puffers.

Councilwoman Head pushing for tobacco change

Councilwoman Stacy Head is set to introduce an ordinance this week that would create new restrictions on tobacco sales in the city.

It's a fight to steer New Orleans kids away from tobacco use.

"This is an initiative that has been brought together by a large coalition of people, some faith based organizations, some organizations dedicated to trying to reduce the use of tobacco products," Head said.

The measure would ban new businesses from selling tobacco products within a certain distance from city schools, playgrounds, libraries and churches.

Existing businesses would be excluded from the ban.

Up for debate is just how far the boundary lines would extend.

Head said it could be anywhere from 300 to 1,000 feet.

Those details will be worked out during a Housing and Human Needs Committee meeting Monday.

"We don't allow liquor sales often very close to churches and close to schools and close to parks,” Head said. “We should have the same rules for tobacco. It's gonna help, again, set an environment around a school that's going to be more wholesome."

Pastor Patrick Keen with Bethlehem Lutheran Church in Central City said the measure would be an important cog in the city’s rebuilding effort.

"It's a land use ordinance that we're addressing,” he said. “How do we use the land in New Orleans as we develop post-Katrina?”

Keen believes the proposal would help offset what he describes as an ongoing tobacco advertising blitz.

"Our children are being targeted by the tobacco industry,” he said. “There's about $251 million that's used by marketing specialists in the tobacco industry in Louisiana alone."

But some retailers feel a restriction would be unnecessary, pointing out there are already laws on the books addressing underage tobacco sales.

"If they're worried about minors, especially like from schools, they don't have to be worried about it because the state has a law and we do have strict laws regarding our store over here,” said Deya Ottallah, who manages a convenience store not far from Cohen High School. “There is no selling tobacco for minors."

Head said children do get around the laws, however. And she disagrees with the notion that her proposal could signify too much government.

"I'm a firm believer in the market taking care of many, many, many things, but I think government has an obligation to control the market when it's something as harmful as tobacco and kids," Head said.

The proposal is expected to be ready for a full council vote on Thursday

Adult smoking drops in Arkansas

New survey information shows there are nearly 10,000 fewer smokers in Arkansas since the beginning of the Arkansas Department of Health's (ADH) Tobacco Prevention and Cessation Program in 2002. When the program started in 2002, 25.1 percent adults smoked in the state; more current data show that those numbers have decreased to approximately 20.7 percent.

Dr. Paul Halverson, director of the ADH and state health officer said, "We are encouraged by these results." Overcoming tobacco addiction is one of the hardest things anyone can do -- especially for adults that have been smoking for a long time. We applaud these Arkansans who have beaten addiction and celebrate with them as they lead healthier lives. However, we still have more work to do as we have many Arkansans that would benefit from a tobacco-free lifestyle."

"This news is also good for Arkansas's economic health," Gov. Mike Beebe said. "When fewer people smoke, we have healthier employees, healthier families and less demand for health-care services. It all adds up to a healthier workforce, which will help us in our efforts to attract new business and industry to Arkansas."

The ADH Tobacco Prevention and Cessation Program (TPCP) funded through the Tobacco Master Settlement Agreement, works to reduce tobacco use in Arkansas. Through community and school prevention programs, a media and public relations campaign known as Stamp Out Smoking, and cessation services for tobacco users looking to quit, TPCP continues to see the positive effects of its efforts.

"It's rewarding to see our hard work pay off with the release of these new numbers," said Dr. Carolyn Dresler, ADH Director of the Tobacco Prevention and Cessation Program. "It takes all of our partners working together to achieve these kinds of results and through youth prevention efforts, quitting services like the Arkansas Tobacco Quitline and policy changes like the tobacco tax, we feel confident tobacco use in Arkansas will continue to decline."

Arkansas has made significant strides over the past year to provide more services for tobacco users who want to quit and Arkansans have overwhelmingly responded. Since 2008 the toll-free Arkansas Tobacco Quitline has received more than 22,000 calls. The Quitline, found at 1-800-QUIT-NOW, now offers free motivational coaching with a QuitCoach by phone or online and free medications while supplies last.

Alberta Faye Powell quit smoking on Oct. 20, 2008, with the help of Quitline. She said that she was successful because of the combination of the nicotine patches, coaching and "having the attitude that you are ready to quit." She said the coaches provided assistance in a professional manner and assured her that it was OK to be honest if she failed and to start again.

While helping tobacco users quit smoking provides maximum benefits for the state and the individual, it is equally as important to ensure that youth never start. Arkansas has been successful in continuing decline in youth smoking despite national statistics remaining stagnant. In Arkansas, youth smoking has decreased from 34.7 percent in 2001 to 20.7 percent in 2007.

A decline in tobacco use in the state benefits all Arkansans. It means lower health care costs, due to smoking-related illness, less exposure to second hand smoke and longer life expectancy resulting in more time with loved ones. Smoking is a major cause of heart disease, stroke, emphysema and chronic bronchitis. Since the Tobacco Prevention and Cessation Program began in 2002 the number of hospital admissions in Arkansas for heart attack, stroke, chronic bronchitis and emphysema has declined progressively each year resulting in substantial savings in healthcare costs.

McKenna claims win in tobacco advertising case

Washington's Division One Court of Appeals ruled Tuesday that a cartoon image included in the Nov. 2007 ad campaign by R.J. Reynolds Tobacco Co. in Rolling Stone magazine was in violation of the 1998 Tobacco Master Settlement Agreement.

In doing so, the court overturned a June 2008 verdict in favor of the company, which ruled that the content didn't depict traditional cartoons and that the images were more thought-provoking than humorous. Tuesday's decision awarded the State attorneys fees and costs and remanded the case for damages.

Washington Attorney General Rob McKenna called the ruling a reminder of how committed the states are to enforcing the public health provisions of the MSA and prohibiting the illegal marketing of tobacco products.

"This lawsuit demonstrates, even 10 years later, states have not forgotten legacy of the Master Settlement Agreement," said the Republican AG, who recently served three years as co-chair of the National Association of Attorneys General Tobacco Committee.

"This is the kind of advertising that brought about the Master Settlement Agreement in the first place and this is one of the on-going legal commitments tobacco companies made to the states. We are holding them accountable."

Eight states - Maine, Ohio, California, Illinois, Maryland, Pennsylvania, Connecticut and Washington - sued R.J. Reynolds after the ad ran.

The Maine and Ohio judges sided with the company and California came back with a split decision. A Pennsylvania judge became the first to hold Reynolds liable, ordering the company to pay $302,000 or run a full-page anti-smoking ad in Rolling Stone. The other states' lawsuits are still pending.

"This is a significant decision in that it's the first appellate court interpretation of the use of cartoons in tobacco advertising," said Senior Counsel Rene Tomisser, who argued the case and was recently promoted to section chief of the attorney general's Complex Litigation Section.

As of now, R.J Reynolds has not said if they would plan an appeal.

Tobacco ban is premature

Well-intentioned Pentagon health experts are urging Defense Secretary Robert Gates to ban the use of tobacco by troops and end its sale on military property. It's an admirable goal, and achievable some day. But the proposal, or at least its announcement, is ill-timed, coming last week just days after the largest one-day death toll in months for U.S. troops in Afghanistan.

A plan to ban tobacco is something to announce during peacetime.

The Institute of Medicine study, requested by the Department of Veteran Affairs and the Pentagon, notes that one in three servicemembers use tobacco, compared with one in five adult Americans, USA Today reported. The study also found:

Tobacco use increased after wars in Iraq and Afghanistan began, and troops worn out by repeated deployments often rely on cigarettes as a "stress reliever."

The heaviest smokers are soldiers (37 percent) and Marines (36 percent), who have done most of the fighting in Iraq and Afghanistan.

Combat veterans are 50 percent more likely to use tobacco than troops who haven't seen combat.

The study suggested the Pentagon consider gradually phasing out the subsidized sale of tobacco products on U.S. military bases and that it implement a series of tough anti-smoking measures, starting with new recruits. Well, with new recruits who aren't being sent off to war, anyway.

Focusing on smoking while troops are dying in combat has a missing-the-forest-for-the-trees feel. Studies and proposals don't happen in a vacuum. Or maybe they do, and that's the problem.

The military has a much more troubling health crisis right now -- and that is a record suicide rate among servicemembers. Like the smokers, the majority of military members who commit suicide saw combat, and served repeated deployments. And most were deployed repeatedly because the military has struggled at the same time to attract qualified recruits. Definitely a circular nightmare, and one in which cigarettes are not the villain.

When facing combat, fear, post-traumatic stress disorder, depression, traumatic injury, stressful life events -- things military personnel and veterans can struggle with daily -- tobacco use isn't the problem. The military is working on suicide prevention programs, even as the trend continues upward, Military.com reported. More, urgent work is needed.

The study cites rising tobacco use and higher costs for the Pentagon and VA as reasons for the ban. And the rising tobacco use is tied to combat in Iraq and Afghanistan. Which is maybe why the study's mixed-message recommendation is to phase-in the ban over years, perhaps "up to 20."

FDA's tobacco road

For most of the last 15 years, the Food and Drug Administration's authority to regulate tobacco has been either a thwarted promise or a fitful threat, depending on your point of view.

It has been pressed by anti-smoking crusaders and public health groups, put on hold by the Supreme Court and beaten back repeatedly by the tobacco industry and its political allies. Last year, the latest such proposal was left for dead after President Bush threatened he would veto a measure, passed by the House of Representatives, if it made its way to his desk.

But on June 22, a political resurrection occurred in Washington, D.C.: Flanked by lawmakers, anti-smoking advocates and even a tobacco industry executive, President Obama (himself a smoker who's struggled to quit) signed into law a measure giving the FDA all the authority over tobacco that it has periodically sought, and more. That's a measure not only of the doggedness of some lawmakers, but how the American landscape has changed for the makers of tobacco products.

Roughly one in five American adults still smokes cigarettes -- down from a pinnacle of 40% in 1965. Most of the nation's workplaces, public buildings and restaurants no longer allow smoking. Though an estimated 1,100 kids take up smoking every day, tobacco has neither the Hollywood glamour nor ease of access it once did for those under 18. Even tobacco farmers are a vanishing breed, with many states using funds from a $206-billion legal settlement with the tobacco industry to buy them out of the business.

Tobacco use, estimated to kill 443,000 Americans and cost $193 billion in lost productivity and added healthcare costs every year, is something that fewer and fewer politicians dare defend.

One of the oldest cigar makers shuts down its plan

Florida will fell short of one of its iconic cigar plants in later this summer when Hav-A-Tampa closes its factory, which has been working since 1902 and fires almost 500 employees.
Hav-A-Tampa revenues were hit dramatically by constantly increasing tobacco taxes and strict indoor smoking policies that have obliged smokers to go outside for a puff.
Altadis Inc, the owner of Hav-A-Tampa made public their decision to close the plant on Thursday during a special press-conference.
The major part of employees was involved in manufacture of legendary Jewel cigars, Hav-A-Tampa's top-seller. According to Kevin Barlow, head of plant’s human resources department, many employees have been working there for 15 years or even more, with even one worker who has been employed for 50 years.
Altadis made desperate efforts to keep the factory going, but was unable to overcome dramatic sales decline caused by the economic downturn and landmark tax on cigars.
The manufacture would be transferred to another plant owned by Altadis and situated in Puerto Rico. The owner also decided to keep the Florida distribution center open.
After hearing the news of plant’s closure, Hav-A-Tampa workers were trying to figure out if they would be able to get new work in an state where the unemployment rate reached 10 percent last month.
Debra Barker, a Hav-A-Tampa worker admitted that she has been working at the plant for 15 years and there have been people who have been there even more. She said that she would get another job since she had a higher education, but it would be very difficult to get a decent job for other people who had been working at the plant after graduating from school.
Atladis spokesman said that a combination of several factors affected Hav-A-Tampa revenues, among which were the economic downfall, growth of unemployment rates and implementation of smoking bans in enclosed public places. The strict smoking bans have essentially hit revenues in central and northern states, where it's impossible to go outside in order to smoke a cigar in the winter.

Tribal members plead not guilty to contraband cigarette charges

Four people who operated a smoke shop on the Swinomish Indian Reservation that was raided for untaxed cigarettes two years ago pleaded not guilty to federal charges Monday in Seattle.

Tribal members Marvin Wilbur, 71, and his wife Joan Wilbur, 72, along with their daughters-in-law April Wilbur, 44, and Brenda Wilbur, 49, were indicted by a grand jury in U.S. District Court last month on one count of conspiracy to traffic in contraband cigarettes and five counts of trafficking in contraband cigarettes.

The four remain free pending a trial set for September. The charges carry prison terms up to five years.

The Wilbur family ran the Trading Post at March Point, near Anacortes, which was raided in May 2007. Agents seized nearly four million unstamped cigarettes and about $120,000 in cash and bank accounts. It all has been forfeited to the government.

Prosecutors allege the Trading Post took in at least $13 million in revenue from contraband cigarettes and should have paid about $11 million in tobacco taxes.

In 2003, Marvin and Joan Wilbur unsuccessfully sued to try to stop a cigarette-tax compact between the state and the tribe that requires the tribe to collect the same tobacco taxes from on-reservation smoke shops that the state would collect.

Prosecutors say the Wilburs didn't get a tribal license to sell cigarettes and didn't pay tribal tax.

More Cigarettes More Health Problems

A recent study found that smokers have more migraine attacks than non-smokers. But a research published in The Journal of Headache and Pain indicated that smoking could ameliorate migraines by reducing anxiety, one of the main factors that spark an attack.
One advantage of this study is that the sample used, 361 medicine students from the University of Salamanca, were fully informed about what a migraine was. Most surveys which studied the migraine in smokers are done in people without knowledge of the illness, but this recent study tried to found about the presence or absence of migraine and whether or not they smoked in people knowing everything about this disease.
At the end of the investigation was found that 16% of students fulfilled migraine criteria, while 20% smoked. But the percentage of smokers was higher (29%) in those who were also migraine sufferers and migraine frequency in those students who were migraine sufferers and smokers was clearly higher than in those who were non-smokers and migraine sufferers.
According to this last study, smoking is a precipitating factor of this type of headache, as the influence of active smokers is one third higher in migraine sufferers and there is a direct relationship between the number of cigarettes smoked and the frequency of migraine attacks.
At the end of the study researchers became more stressed, because they assure that the tobacco dosage play a very important role in migraine sufferers. The study results detected that the migraine sets in after five daily cigarettes.
Moreover, although the percentage of those who smoked was higher in people with migraines, they smoked less than those who did not suffer migraines. This is because they knew that if they will smoke more than five cigarettes a day, they would be more likely to have a migraine attack.
The neurologists argued that in no case should a migraine sufferer be advised to smoke thinking that it is going to improve their migraines.