Reynolds American (RAI), manufacturer of four of the top 10 best-selling cigarette brands in the United States, reported its second quarter results. The company reported earnings of $1.29, and beat expectations by $0.14.

Despite the strong performance of the Conwood business and market share gains of brands like Camel, Pall Mall and Grizzly, net sales declined 3.8% year-over-year to $2.3 billion.

The company’s cigarette shipment volume declined 6.0% due to wholesale inventory reductions associated with the Federal tax increase and also due to lower volume from the company’s non-support brands. During the quarter, industry cigarette volume declined 4.1%.

The company’s growth brands, Camel and Pall Mall, gained a strong cigarette market share of 2.6 percentage points, bringing their combined share to 12.7%. This drove the company’s total cigarette market share to 28.7%, up 0.4 percentage points.

Camel, the company’s flagship brand, had a market share of 7.5%, in-line with the prior-year period. The company’s smokeless Camel Snus products contributed another 0.3 percentage points on a cigarette-equivalent basis, which assumes that a tin of Camel Snus is equal to a pack of cigarettes.

Conwood, the company’s moist-snuff brand, also posted strong volume and market share gains. Conwood’s total moist-snuff shipment volume grew 6.7% in the second quarter, despite the negative effect of trade inventory adjustments. However, industry moist-snuff shipment volume grew only 1.5% in the second quarter, primarily due to changes in competitive promotional strategies and adjustments in trade inventories following the federal tax increase.

With a full quarter of the federal excise tax increase effect, the company believes to have a better understanding of how the increases are affecting volume and pricing. Based on these factors, and with the support of a strong first-half performance, the company has increased its guidance range.

Annual earnings are now expected to be in the range of $4.40 to $4.60 per share. Previous guidance was $4.15 to $4.45 per diluted share. The guidance excludes trademark impairment charges.

Altria Group (MO), the company’s strongest competitor, also posted robust second quarter results. Earnings increased 8.7% to $0.50 from $0.46 in the prior-year quarter, primarily driven by the smokeless tobacco category. Phillip Morris International (PM), another strong player, however reported earnings of $0.80 per share, down 4.6% year-over-year.
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