Reynolds American’s Vuse E-Vapor: 1Q16 Performance



Revenue and operating income of the All Other segment

Reynolds American’s (RAI) 1Q16 revenue for its All Other operating segment decreased by 6.5% to ~$0.1 billion. RAI’s All Other operating segment includes:

  1. RJR Vapor, which manufactures and markets Vuse Digital Vapor Cigarette
  2. Niconovum USA and Niconovum AB, which manufacture and market nicotine replacement therapy gums under the Zonnic brand name
  3. SFR Tobacco International GmbH (or SFRTI), which distributes Natural American Spirit brand outside the US

Operating income for the All Other segment decreased by 44.3% to $30 million in 1Q16. Despite a weak top line, Vuse Digital Vapor Cigarette continued to deliver robust results in 1Q16.

According to the company’s CEO, Susan Cameron, Vuse is about three times the size of its competitor. Additionally, Vuse has been ranked at the top of 2015’s most successful new products in convenience stores.

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Peers in e-cigarettes

In an attempt to meet the growing demand of e-vapor cigarettes, many tobacco competitors also have a presence in the e-cigarette market. As a result, Philip Morris International (PM) is exclusively licensed to commercialize Altria Group’s (MO) MarkTen e-vapor internationally. To learn more, please read Altria’s Nu Mark Subsidiary: Innovation in Tobacco Products.

Other companies like British American Tobacco (BTI) and Vector Group Ltd. (VGR) produce innovate e-cigs to meet consumer expectations. Vype (BTI) and Zoom (VGR) are the e-cigs produced by these companies.

Expansion of Vuse

The company plans to expand distribution of Vuse by making it available in almost 115,000 stores. Also, Reynolds rolled out two more variants of Vuse online, VUSE Connect and VUSE FOB. In addition, the Niconovum subsidiary remains focused on the national expansion of the Zonnic nicotine replacement therapy gum. Earlier this quarter, Zonnic launched four styles in a 40-count pack and plans to roll out a ten-count mini lozenge by 2Q16.

RAI comprises 0.6% of the WisdomTree LargeCap Dividend ETF (DLN).

In the coming parts, we will discuss RAI’s 1Q16 margins and valuation multiple.


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