Reynolds Makes Big Move Into Smokeless Tobacco

Camel Snus (pronounced "snoose") will be test-marketed in Portland, Ore., and Austin, Texas, beginning by the end of June.

Could the new product cut down on cancer related illness? Photo Courtesy: queenlacecrystal.com

(CHARLOTTE, N.C.) - Reynolds American Inc., the nation's second-largest cigarette maker, said its first-quarter profit rose 23 percent and it is planning a second major push into the smokeless tobacco category with a snuff product under its famous Camel brand.

The announcement came two days after Reynolds American, maker of the popular Camel and Kool cigarette brands, said it would buy smokeless tobacco company Conwood for $3.5 billion.

"Snus and Conwood are separate initiatives but they both demonstrate how committed we are to the non-smoke category," Chief Financial Officer Diane Neal said on a conference call with analysts.

Snus is sold in small pouches that are placed between the lip and gum. The tobacco in them does not require the spitting associated with traditional snuff.

The Winston-Salem, N.C.-based company said improved sales of its premium brands caused its profit to climb 23 percent to $345 million, or $2.34 per share, from $281 million, or $1.90 per share, in the year-ago period.

Excluding items, the company reported a profit of $279 million, or $1.89 per share, for the quarter ended March 31st.

Profit was up despite sales that were essentially flat at $1.96 billion.

The results topped Wall Street estimates for earnings of $1.87 per share on $1.95 billion of sales, according to analysts polled by Thomson Financial.

Meanwhile, between the Conwood acquisition and the Camel Snus test, the company is making a big push into smokeless tobacco at a time when smoking bans are on the rise.

Snus is popular in Sweden, where it is credited with helping that country reduce its percentage of smokers below the 20 percent threshold recommended by the World Health Organization. But the product has been banned by the European Union since 1992.

London-based British American Tobacco, which will manufacture Camel Snus in Sweden under a contract with Reynolds American, has been urging EU regulators to reconsider their ban on snus, saying the product helps reduce the harm done by smoking.

Research in Sweden on whether snus use is linked to cancer has been mixed.

Matt Myers, a spokesman for the Campaign for Tobacco Free Kids, said he is worried Reynolds will add candy flavors to snus, making the product attractive to children.

"There are no regulations governing what goes into a product like Camel Snus," he said. "

The company also reaffirmed its full-year 2006 forecast for earnings of $8 to $8.40 per share and said it does not plan to update that projection until the closing of the Conwood deal occurs.