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A Look at Reynolds American’s 3Q16 Performance

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Price movement

Reynolds American (RAI) has a market cap of $66.3 billion. It fell 2.1% to close at $46.29 per share on October 19, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.7%, -2.9%, and 2.9%, respectively, on the same day. RAI is trading 2.2% below its 20-day moving average, 4.5% below its 50-day moving average, and 5.6% below its 200-day moving average.

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Related ETF and peers

The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) invests 2.6% of its holdings in Reynolds American. The ETF tracks an equal-weighted index of large-cap US consumer staples stocks drawn from the S&P 500. The YTD price movement of RHS was 3.6% on October 19.

The market caps of Reynolds’ competitors are as follows:

  • Philip Morris International (PM) — $149.5 billion
  • Altria Group (MO) — $121.5 billion
  • Vector Group (VGR) — $2.6 billion

Performance of Reynolds American in fiscal 3Q16

Reynolds American reported 3Q16 net sales of $3.20 billion, a rise of 1.4% over the net sales of $3.16 billion in 3Q15. Sales of the RJR Tobacco, Santa Fe, and American Snuff segments rose 0.80%, 21.6%, and 11.4%, respectively, between 3Q15 and 3Q16. The company’s cost of products sold as a percentage of net sales fell 730 basis points, and its operating margin rose 940 basis points.

Its net income and EPS (earnings per share) rose to $861.0 million and $0.60, respectively, in 3Q16, compared with $657 million and $0.46, respectively, in 3Q15. It reported adjusted EPS of $0.61 in 3Q16, a rise of 10.9% over 3Q15.

Reynolds’ cash and cash equivalents fell 26.1% between 4Q15 and 3Q16. Its debt-to-equity ratio fell to 1.4x in 3Q16, compared with 1.9x in 4Q15.

The company has projected adjusted EPS in the range of $2.27 to $2.33 for fiscal 2016. According to Andrew Gilchrist, RAI’s chief financial officer, “Our updated 2016 guidance reflects our current cigarette industry outlook, along with our increased investment in innovation, regulatory compliance and the current state political processes.”

It has repurchased $75 million of its common stock under its share repurchase program. For an ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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