Reynolds American, Inc. was created in 2004 by the merger of R.J.Reynolds Tobacco Holdings and British American Tobacco PLC, and is now the parent company of the operating companies listed below with their specialties. As a holding company, Reynolds American focuses on pleasing the stockholder, while the operating companies focus on pleasing their customers. To please stockholders, the management team at Reynolds American focuses on two things: increasing stock price and increasing dividends. The operating companies are as follows:
R.J. Reynolds Tobacco Company – U.S. market mostly. Sells 1 of every 3 cigarettes sold in the US. Brands include: Camel, Kool, Pall Mall, Winston, Salem, Doral, Misty, Capri, Lucky Strike, Barclay, Carlton, More, Now, Tareyton, Vantage, Viceroy. Conwood, Company, LLC specializes in smokeless tobacco products. Lane Limited is also part of Conwood. Santa Fe Natural Tobacco Company sells a line of additive free tobacco products, while R.J. Reynolds Global Products, Inc. sells most products internationally
Susan M Ivey, Chairman, President and Chief Executive Officer
Ms. Ivey has been involved in the tobacco industry for more than 25 years. She started with Brown and Williamson Tobacco (B&W) as a sales representative in 1981. She held a variety of positions including divisional and brand management, as well as international positions until she finally became Senior VP of Marketing and part of the executive committee of B&W in 1999. She became CEO of B&W in 2001. Susan M. Ivey was one of the engineers of the merger between British American Tobacco and R.J. Reynolds Tobacco Holdings. She handled the merger so well that she became President and CEO of Reynolds American, Inc. when it was formed in 2004. In 2006 she was appointed Chairman as well.
From the start as head of the company, Susan had to wrestle with big issues facing the tobacco company: pressure to diversify into other products, pressure from competitors, litigation pressure, and pressure from non-smokers who felt tobacco companies shouldn’t even exist. While these issues had been smoldering through her entire career, they came to a pinnacle during the beginning of her leadership era.
Ivey’s strategy was simple and clear. She focused on profits through expense reduction and looked for growth through acquisition. The focus on shareholder and customer is clear, too: a quick look at the investor section of the Reynolds American website shows a sidebar that states: “Our operating companies put their customers first – which lets us put our shareholders first.”
In addition, as soon as Reynolds America was created, the company developed corporate principles by which all operating companies and the corporate entity would operate. These were essentially in response to the recent tobacco litigation.
The principles were, in short: Be Principled, Be Creative, Be Dynamic, and Be Passionate. The website goes further to explain how these can tie to employee bonuses and salary assessments. More surprising is the tie-in to customer feedback in the form of a corporate statement on how Reynolds America acknowledges that it does, in fact, believe that cigarette smoking is harmful to your health — and the only way to prevent that harm is to quit smoking. This may very well have been mandated by legal settlements, but it was done skillfully. The statement about harm was then linked to a platform of Corporate Social Responsibility “Planks”, including harm reduction and product integrity, consumer and customer engagement, youth tobacco prevention, employee responsibility, community and civic engagement, supplier responsibility, environmental sustainability, and stakeholder dialogues. In essence, Ivey recognized that Reynolds America had to become a corporate citizen.
In Ivey’s opinion, Reynolds manufactures tobacco products. Tobacco products are legal. People buy them. It is an individual’s choice to buy them or not regardless of popular opinion, medical opinion or otherwise. If Reynolds American did not make them, a company in China would or a company in Russia would. Ivey is positioning her company to make a profit on a product they manufacture.
For growth, and expansion, Ivey is buying other companies in the same industry. In April of 2006, Ivey acquired Conwood, the second largest manufacturer of smokeless tobacco in the U.S. to expand Reynolds’ footprint in the tobacco market. Finally, again to maximize profit, last year, Ivey announced she would be focusing on the premium end of the market, Camel, Kool and Pall Mall, realizing that the premium buyer would be able to absorb price increases more easily than would the discount brand buyer. Ms. Ivey’s latest endeavor is the revival of the Camel brand through Camel No. 9 marketed towards young women. A recent ad said “Now available in Stiletto” apparently offended some women, andwhether the ads offended the intended buyers remains to be seen. Nevertheless, through these moves, revenue has grown 6% and dividends have grown 80% during her tenure.
On July 20, 2008 RAI affirmed the company’s earnings would be flat for 2008, but on track. Higher prices offset lower cigarette sales and higher litigation settlement expenses. The company also launched a $350M stock repurchase plan and positioned the company to receive better credit terms. This bodes well for the continued restructure and re-alignment of Reynolds American.
Interested in the Stock?
The stock is currently trading near its 52-week low at around $55.00. The close on Friday, August 23, 2008 was $54.91. The 52-week range is $45.61 to $72.00. The 52-week high was set near the beginning of 2008.
Until this year, the stock had been doing well. In 2008, due to the unsteady economy, the stock price has been driven steadily downward. There are still pending risks associated with tobacco litigation and legislation that proposes regulation of certain flavorings in cigarettes, like menthol. However, analysts line up this way: 7 suggest “holding” the stock, 2 suggest “Buying,” and 1 suggests a “Strong Buy.” It is clear that Susan M. Ivey has a passion for what she does, and understands the tobacco industry well through experience. She seems capable of handling its volatility. This is a company to watch!