R.J. Reynolds to Trim 8% of Jobs

R.J. Reynolds Tobacco Holdings Inc., parent of the No. 2 U.S. cigarette maker, said Wednesday that it plans to cut more than 600 jobs, or 8% of its work force, as it battles discount brands and increased promotions by rivals.

The company, best known for its Camel and Winston brands, also narrowed its earnings view and said it would exit certain businesses and record a fourth-quarter restructuring charge. Its shares jumped 5% on the news.

“Increased competitive promotional spending, along with the continued growth of deep-discount brands and the effect of higher state excise taxes, have created a significantly more challenging business environment,” Chairman and Chief Executive Andrew Schindler said.

As competitors such as top player Philip Morris Cos. boost their marketing and promotional spending, R.J. Reynolds has responded by spending more. All of the companies also have had to deal with U.S. states increasing their excise taxes on cigarettes. As taxes rise, customers are faced with higher retail prices and often opt for lower-price brands.

“I guess the positive [stock] reaction is just a result of the fact that something was actually done,” said Simon Burton, senior industry analyst for Banc of America Capital Management, which owned about 209,000 R.J. Reynolds shares and more than 9 million Philip Morris shares at the end of September.

“It probably shows that they’re serious about improving their financial situation,” he said.

R.J. Reynolds will take a pretax charge of about $235 million, or about $145 million after taxes, in the fourth quarter. In October, it said it expected to take a quarterly charge but did not outline any details.

R.J. Reynolds shares climbed $1.94, or 5%, to $40.76 on the New York Stock Exchange. The shares have fallen about 28% since the beginning of the year, while shares of Philip Morris have lost less than 14% of their value over the same period.

Shares of New York-based Philip Morris closed up 3.3% at $39.60. Other U.S. tobacco companies’ shares also climbed.

R.J. Reynolds said about $140 million of its pretax charge is due to the planned divestiture of its packaging and botanical-extraction divisions. R.J. Reynolds said the remaining $95 million of the pretax charge is associated with the workforce reduction.

The company, based in Winston-Salem, N.C., said it plans to eliminate about 635 full-time jobs within the parent company and its R.J. Reynolds Tobacco Co. subsidiary.

The cuts will be mainly completed in the first half of 2003, with about 520 layoffs and around 115 reductions through attrition, R.J. Reynolds said.

R.J. Reynolds said it now expects 2002 ongoing diluted earnings of $6.05 to $6.10 a share.

Analysts had expected the company to earn $5.96 to $6.25 a share this year, according to market data firm Thomson First Call.

In October, R.J. Reynolds cut its full-year outlook to $6.05 to $6.40 a share, compared with $7.74 a share in 2001, due to increases in its promotional spending.