Cigarette Giant Reynolds American Plans to Cut 10% of its Staff

March 20th, 2012 00:00

Reynolds American Inc., the second largest US tobacco company, announced a few days ago that it will cut about 10% of its staff, or about 540 jobs, by the end of 2014 as it tries to match its prices with changes within the industry. The given action will decrease spending by about $70 million a year for the manufacturer of Camel, Pall Mall and Winston cigarette brands. Reynolds, which also sells smokeless tobacco products, stated the main retirements will be voluntary.
The company expects to take about $100 million in dismissal and also plans to save about $25 million from the reductions this year. That total will increase to $70 million each year by 2015.

At the end on 2011, Reynolds already had about 5,400 employees, and if needed it hires new ones. “We are making all these cuts in order to back up the growth of our main cigarette brands,” CEO Daniel M. Delen said during the conference that took place in Boston. Reynolds had announced the review in January and declared that it had dismissed employees at a production plant in Tobaccoville. The company had previously closed two cigarette factories one of which was in Puerto Rico. “Rather complicated economy and increased unemployment have created a difficult market and tight advertising activity. It stated that promotions by competitors affect its sales in the 4Q, as sales of Camel brand dropped by 4.5% and Pall Mall posted poor growth.

Cigarette Giant Reynolds

Cigarette volumes have decreased with each year by approximately 3% and have dropped greatly since 62 cents per package federal tax growth in 2009. Extra state tax increases, smoking bans, regulations and health concerns have made tobacco industry tougher. Not only companies face difficulties, consumers are also affected by economic challenges and unemployment continues to persist. “Currently smokers are switching to lower priced cigarettes or turn to other tobacco products,” said Delen. As well as other cigarette companies, Reynolds also has been concentrated on cigarette alternatives as cigars, chewing tobacco or snuff for future sales increase.

“Reynolds made a very good decision in directing the company towards a more cost-advantaged position in comparison to other internal tobacco companies,” said industry analyst Chris Growe. Other tobacco companies also have reduced prices and offered buyouts to particular employees. In September, Richmond, Va.-based Altria Group Inc., owner of the world’s leading cigarette manufacturer Philip Morris USA, declared that it plans to reduce $400 million by the end of 2013 mostly by decreasing the number of employees at its cigarette business by approximately 15%. According to estimates, shares of Reynolds American have decreased by 1.2% in afternoon trading.

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