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Third Quarter and Nine Months 2009 — At a Glance
• Adjusted EPS: third quarter at $1.24, down 3.9 percent; nine months at $3.54, up 0.6 percent
o Excludes non-cash trademark impairments in both years, and prior-year restructuring charges and gain from joint-venture termination
• Reported EPS: third quarter at $1.24, up 72.2 percent; nine months at $2.56, down 30.2 percent
• RAI increases 2009 guidance: Adjusted EPS range of $4.60 to $4.70
• R.J. Reynolds Tobacco Company posts additional margin gains
• Conwood captures 29.9 percent share of moist-snuff market
• RAI again recognized as a leader in corporate sustainability
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A lawsuit by a group of tobacco companies is the opening salvo against a new federal law giving the Food and Drug Administration the authority to regulate the industry. The legal maneuver prompted harsh criticism from the medical community and public health organizations that strongly backed the Family Smoking Prevention and Tobacco Control Act, signed by President Obama in June.
The federal statute for the first time gives the FDA the power to regulate the sale and distribution of tobacco products. While the law does not allow the agency to ban tobacco sales, it does give the FDA the authority to reduce nicotine levels, require new warning labels and bar certain marketing tactics, especially those aimed at children. . . .
The ban at question in that case, however, went well beyond the new FDA regulations, said Richard A. Daynard. He is president of the Public Health Advocacy Institute, a legal research center in Boston that focuses on tobacco liability and other public health issues. The Lorillard decision also centered on the Massachusetts attorney general's lack of authority to regulate tobacco.
"But because Congress, by a substantial majority and many years of consideration, has adopted this [federal law] and indicated in its findings of fact that these provisions were necessary to save hundreds of thousands of lives a year, the Supreme Court is not likely to view it that way and can easily distinguish these findings" from prior rulings, said Daynard, a law professor at Northeastern University School of Law.
He also noted that other federal laws have banned cigarette advertising on television and radio for more than 40 years without legal threat.
Daynard suggested it was no accident that the latest case was filed in Kentucky,
As Americans, we value many things and among those things that we cherish is the First Amendment, which guarantees us the right to free speech, along with other important freedoms.
That is why we are supporting a lawsuit filed by some of the nation's largest tobacco companies claiming that restrictions in federal law violate their freedom of speech.
Bowling Green-based Commonwealth Brands and other companies, including R.J. Reynolds, are challenging the Family Smoking Prevention and Tobacco Control Act, which prohibits tobacco companies from giving truthful information to adult customers. . . .
Regardless of one's opinion on tobacco companies and smoking, these companies deserve to advertise to their adult customers.
The companies respect the law's efforts to keep tobacco products from underage customers. This is a reasonable restriction. While freedom of speech should be construed broadly it should not be absolute in every instance.
This law may have been well intentioned, but it is clear that it handicaps the tobacco industry's right to free speech. The law ultimately will affect commerce and is tantamount to banning tobacco altogether, which is a legal product.
This newspaper has long been a strong proponent of the First Amendment. . . .
the McCain-Feingold Bill (which restricted campaign financing) was a dangerous intrusion on forms of political speech, which deserve encouragement rather than suppression.
Commercial speech by tobacco companies directed at adults is also deserving of constitutional protection.
The Memphis and Shelby County Industrial Development Board approved tax abatements for Conwood Company LLC to expand and relocate operations in the city and for Owens Corning Roofing and Asphalt LLC to add to its local manufacturing facility.
Conwood, a smokeless tobacco manufacturer, is planning to invest $116.2 million in its expansion and relocation. It will purchase a 787,500-square-foot building on 35.6 acres at 5106 Tradeport Drive for $19.2 million.
It also plans to spend $54 million on FDA requirements and preparing the building for manufacturing and $43 million on production equipment.
A local business is among the nation's largest tobacco companies that filed a lawsuit Monday in Bowling Green, claiming restrictions in a new federal law violate their freedom of speech.
Bowling Green-based Commonwealth Brands and five other companies claim the Family Smoking Prevention and Tobacco Control Act prohibits tobacco companies from giving truthful information to adult customers, according to the lawsuit filed in U.S. District Court.
"It affects us like any other company," said Robert Wilkey, senior legal counsel for Commonwealth Brands, "and we believe it inappropriately interferes with our ability to communicate to adult consumers." . . .
Attorneys at English, Lucas, Priest & Owsley law office in Bowling Green are representing the tobacco companies along with attorneys from Washington, D.C., New York and Pittsburgh, according to the lawsuit. . . .
Floyd Abrams, a lawyer representing Lorillard in the case, said he was confident the suit would be successful.
"Some of these regulations go so far in the direction of stifling the entirely lawful speech of Lorillard to its customers that it violates the First Amendment," he said.
"There are very few methods that we have left to communicate to adult consumers about our products," Wilkey said. Like other manufacturers, "we're out there competing for the attention of the consumer."
COMMONWEALTH BRANDS, INC.; CONWOOD COMPANY, LLC; DISCOUNT TOBACCO CITY & LOTTERY, INC.; LORILLARD TOBACCO COMPANY; NATIONAL TOBACCO COMPANY, L.P.;and R.J. REYNOLDS TOBACCO COMPANY,
v.
UNITED STATES OF AMERICA; UNITED STATES FOOD AND DRUG ADMINISTRATION; MARGARET HAMBURG, Commissioner of the United States Food and Drug Administration; and KATHLEEN SEBELIUS, Secretary of the United States Department of Health* and Human Services, . . .
WHEREFORE, Plaintiffs pray that this Court:
(A) enter a judgment declaring the Act’s speech restrictions, both individually and collectively, to be an unconstitutional abridgement of Plaintiffs’ free speech rights under the First Amendment to the United States Constitution;
(B) enter a judgment declaring that the Act’s warning label and black-and-white text provisions, individually and collectively, effect an unconstitutional taking in violation of the Fifth Amendment to the United States Constitution;
(C) enter a judgment declaring that the Modified Risk Tobacco Products provision violates Plaintiffs’ due process rights under the Fifth Amendment to the United States Constitution;
(D) enter a judgment declaring that the provision allowing modification by the Secretary of the outdoor advertising ban violates Plaintiffs’ due process rights under the Fifth Amendment to the United States Constitution;
(E) enter a judgment declaring that the Act’s restrictions herein challenged collectively effect an unconstitutional taking in violation of the Fifth Amendment to the United States Constitution;
(F) enter a judgment declaring that the Act’s provisions allowing the enactment of additional or more stringent laws is an unconstitutional infringement of Plaintiffs’ free speech
rights and an unconstitutional delegation of legislative power to entities outside the Legislative Branch;
(G) enter, after hearing, a preliminary injunction, pending final resolution of this action, enjoining Defendants from taking any action to enforce the Act;
(H) enter a permanent injunction enjoining Defendants from enforcing the Act’s restrictions herein challenged; and
(I) grant Plaintiffs such additional or different relief as it deems just and proper, including an award of reasonable attorneys’ fees and the costs of this action. 6. In short, while each of these provisions individually violates the Constitution, collectively, the Act’s provisions cut off nearly every currently-available avenue of tobacco advertising and marketing. In so doing, they run afoul of Plaintiffs’ rights to free speech and due process, and effectuate an unconstitutional taking of private property, in violation of the First and Fifth Amendments by, among other things, chilling Plaintiffs’ right to participate in scientific and political debates surrounding their products, unduly restricting Plaintiffs’ right to engage in commercial speech, and confiscating Plaintiffs’ packaging, advertising, and intellectual property for an anti-tobacco message drafted by the Government. Plaintiffs therefore respectfully request that this Court declare the challenged provisions of the Act in violation of the First and/or Fifth Amendments to the United States Constitution and enjoin the Government from enforcing these unconstitutional provisions.
At a Glance
* Adjusted EPS: second quarter at $1.29, up 4.9 percent; first half at $2.30, up 3.1 percent
o Excludes 1Q09 non-cash trademark impairments of $0.98 and 1Q08 gain from joint-venture termination of $0.71
* Reported EPS: second quarter at $1.29, up 4.9 percent; first half at $1.32, down 55.1 percent
* RAI increases, narrows 2009 guidance: Adjusted EPS range of $4.40 to $4.60
* Key cigarette and smokeless brands continue strong performance
* R.J. Reynolds Tobacco Company grows earnings, margin and share
* Conwood posts record moist-snuff volume and share
At least 15,000 purchasers of chewing tobacco in Massachusetts could be eligible for a piece of a $10.65 million class action settlement with U.S. Smokeless Tobacco Co., according to a lawyer for plaintiffs who sued the company.
The plaintiffs’ legal team, which had alleged that UST artificially inflated the cost of chewing tobacco through its large market share, has launched a Web site to explain to consumers how they can access their share of the settlement.
Frequent purchasers of chewing tobacco could be eligible to get up to $700 depending on how many UST products – which include the Copenhagen and Skoal brands – they purchased from Jan. 1, 1990, through May 21. Infrequent purchasers could get $25 to $100.
Robert Bonsignore, one of the lawyers who represented the plaintiffs, said he was initially approached by chewing-tobacco users about filing a lawsuit after Conwood, a competitor of UST’s, had made similar claims against the company.
Tobacco products, because of their addictive qualities, remain a relatively unscathed market even in uncertain economic times. And with the market ups and downs, these businesses could even see an increase in sales from smoking clientele looking to quell their nerves.
However, the steady cash returns from tobacco stocks come with some tradeoffs:
* They offer limited growth prospects, especially as tobacco customers die off (as smokers tend to suffer greater death rates actuarially than nonsmokers). * These stocks represent investments in what some refer to as a "sin" sector, eschewed by "socially responsible" portfolio managers. * These stocks' companies stand in the crosshairs of some former-customers-turned-angry-plaintiffs as well as tax-hungry legislators. * Anti-smoking forces have been taking aim at retail distribution of cigarettes as well as venues for smoking and advertisements that they claim are targeting youth to replace the base of mature smokers.
These built-in risks, not to mention the currently treacherous stock market, should be enough to compel any investor interested in investing in tobacco stocks to first consider carefully their investment.
Still, if an investor is unbothered by moral arguments against tobacco and is willing to test the roily investment waters, some arguments exist for considering tobacco stocks.
Despite the 6.5% yield, RAI is trading around its 52-week low of $51.08. RAI has been taking hits in the headwinds of analyst downgrades and lowered guidance, but trading flat since May 1st. This is not the Conwood division's fault; the producer of the discount dip posted double digit volume growth, according to the Winston-Salem Journal. In fact, Conwood has huge growth opportunities, making up only 4% of revenues in 2006. RAI should follow in UST's footsteps and start to market more varieties of its discount products.
Is it time to try to catch a bit of a, I don't know, let's call it a falling butter knife? Execs must think so after initiating a $350 million buyback program for the forward twelve months. RAI has a strong balance sheet; lots of cash, in other words, your 6.5% yield is safe. Now, time your entrance point right or cost-average down and you'll mint money.
One last thought to ponder: Altria (MO), better known as Philip Morris USA, is testing its own smokeless tobacco product. If market penetration proves difficult for big MO, will either subsidiary be ripe for acquisition by the tobacco giant? Would not be a big surprise to me.
Reynolds American Inc. (NYSE: RAI) today announced strong fourth-quarter and full-year 2007 earnings gains on both a reported and adjusted basis as increased pricing, moist-snuff volume and productivity more than offset lower cigarette volume and higher settlement expense. Results also reflect inclusion of the first full year of Conwood's results and that company's continued growth. RAI's full-year 2007 adjusted EPS of $4.57 was 12.6 percent higher than the prior year. For full-year 2008, RAI forecasts mid-single- digit percentage growth from 2007 adjusted EPS.
Conwood Company, LLC today announced it is expanding its manufacturing facilities at its Taylor Brothers facility in Winston-Salem to provide additional manufacturing capacity and flexibility to meet the demands of the growing smokeless tobacco market.
The new 88,000-square-foot facility will be located adjacent to the existing Taylor Brothers facility on Stratford Road. The new plant will create about 50 new jobs within the next 18 months; at full capacity it could employ up to 100 people. Production is expected to begin at the plant in the first half of 2008.
Reynolds American Inc. (NYSE: RAI) today completed its $3.5 billion acquisition of a holding company that owns Conwood, the nation's second largest manufacturer of smokeless tobacco products, from business interests of the Pritzker family.
The transaction, which was announced April 25, 2006, received required approval from the Federal Trade Commission on May 23, 2006. Reynolds American funded the $3.5 billion acquisition purchase price with the net proceeds of its private offering of $1.65 billion of senior secured notes and borrowings under its $1.55 billion senior secured term loan facility, each of which also closed today, as well as available cash. In addition, RAI entered into a $550 million revolving credit facility today.
"We are excited about the growth prospects Conwood brings to Reynolds American," said Susan M. Ivey, RAI's chairman and chief executive officer.
"Conwood's strong, well-positioned brands are gaining share in the growing moist snuff market, and its high margins will enhance our ability to continue to provide an excellent return to our shareholders."
Cigarette maker Reynolds American Inc. said Wednesday it completed a $3.5 billion purchase of the holding company that owns Memphis, Tenn.-based Conwood, a smokeless tobacco company.
Reynolds American funded the acquisition with proceeds of $1.65 billion of senior secured notes and loans under its $1.55 billion senior secured term loan facility and available cash.
Reynolds American plans to combine its Tucker, Ga.-based Lane Limited subsidiary with Conwood to drive growth in other tobacco products.
Reynolds American Inc., the nation's No. 2 cigarette maker, said Tuesday it has cleared a hurdle at the Federal Trade Commission toward its $3.5 billion purchase of chewing tobacco company Conwood.
The company said the Federal Trade Commission granted it early termination of a waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.