uploads/2015/09/RJR-Tobacco1.jpg

Reynolds American’s Largest Operating Segment: R. J. Reynolds Tobacco

By

Updated

Business segment overview

Reynolds American (RAI) operates in four business segments:

  1. R. J. Reynolds Tobacco
  2. American Snuff Company
  3. Santa Fe
  4. Others

Article continues below advertisement

R. J. Reynolds revenue

R. J. Reynolds is Reynolds American’s largest operating segment. R. J. Reynolds brands include the two best-selling cigarettes in the US, Camel and Pall Mall. The net revenue of R. J. Reynolds, including excise taxes, increased by 0.6% to $6.8 billion in 2014, compared to $6.7 billion in 2013. This was primarily due to an increase in retail (XRT) share market of Camel and Pall Mall. Camel’s retail share increased to 10.2% in 2014, compared to 9.8% in 2013.

Camel’s cigarette market continued to grow by its innovative capsule technology offered in Camel Crush and Camel menthol styles.

R. J. Reynolds contributed 79.9% of the company’s total consolidated revenue in 2014.

Operating income

R. J. Reynolds’ operating income decreased 16% to $2.2 billion in 2014, compared to $2.6 billion in 2013. This was primarily due to the unfavorable impact of the MTM (mark-to-market) adjustment of $0.4 billion. (Actuarial gains or losses that are in excess of 10% of the greater of fair value of plan assets or benefit obligations are recognized annually, or during an interim period, and are recorded as mark-to-market or MTM adjustments.)

R. J. Reynolds’ operating income contributed to 80.1% of the company’s operating income in 2014.

Article continues below advertisement

R. J. Reynolds primarily conducts business in the United States. However, in 1999, international rights to R. J. Reynolds’ brands were sold to Japan Tobacco (JAPAF). R. J. Reynolds also manages super-premium cigarette brands Dunhill and State Express 555, which are licensed from British American Tobacco (BTI).

Snus expansion

In the highly competitive tobacco industry, companies are producing innovative products and expanding into smoke-free tobacco. For example, Reynolds American and Philip Morris International (PM) aim to expand Camel Snus and Marlboro Snus, their respective brands. Camel Snus is a smoke-free, heat-treated tobacco product sold in pouches that provides convenient tobacco consumption.

RAI has exposure in the iShares Core S&P 500 ETF (IVV) with 0.1% of the total weight of the portfolio.

Advertisement

More From Market Realist