A substantial charge taken to reflect lower trademark values for some nongrowth cigarette and smokeless brands contributed to Reynolds American Inc. posting just $8 million in net income for the first quarter today.
The trademark impairment charge of $453 million, which the company said was noncash, contributed to a $285 million decline in net income.
Diluted earnings were 3 cents a share compared with $1.71 a share a year ago. The earnings from the first quarter of 2008 included a gain of 71 cents from the dissolution of Reynolds’ Gallaher joint venture.
Excluding the trademark charge, Reynolds reported $293 million in net income and diluted earnings of $1 a share - the same earnings as a year ago.
Analysts typically exclude charges from their earnings forecast. The average forecast was 98 cents by analysts surveyed by Zacks Investment Research.
Reynolds’ share price was up 68 cents to $41.30 at 1:15 p.m. today.
Susan Ivey, the chairwoman, CEO and president of Reynolds, said that the manufacturer also was affected by a decline in cigarette sales from recent increases in state excise taxes, as well as higher pension expenses.
Those costs was offset, the company said, by higher pricing instituted a few weeks before the 62-cent increase in the federal excise tax on cigarettes on April 1.
Reynolds also said it expects diluted earnings in a range of $4.15 to $4.45 a share for the full year, excluding trademark impairment charges.
“The fact that both of Reynolds’ reportable operating segments continued to post increases in adjusted operating income highlights the strength of the total-tobacco business model we’ve established over the past several years,” Ivey said.
“The unprecedented increase in federal excise taxes on tobacco products that took effect April 1 disrupted first-quarter cigarette and moist-snuff shipments.
“As a result, there were significant reductions in wholesale and retail inventories, and that caused higher-than-usual industry volume declines,” Ivey said. “The tax increases, as well as pricing changes, also triggered trademark valuations that resulted in impairment charges on some of our companies’ non-growth brands.