Reynolds American to cut 540 jobs

Reynolds American

Reynolds American Inc., the second-biggest US tobacco company, said Wednesday that it will eliminate about 10 percent of its workforce, or about 540 jobs, by the end of 2014 as it works to align its costs with changing dynamics within the industry.

Reynolds American

Reynolds American building

The move will reduce spending by $70 million a year for the Winston-Salem-based maker of Camel, Pall Mall and Natural American Spirit brand cigarettes.

Reynolds, which also sells Kodiak and Grizzly smokeless tobacco products, said most departures will be voluntary.

The tobacco company expects to take about $110 million in severance and other charges in the first quarter and expects to save about $25 million from the cuts this year. That total will rise to $70 million annually by 2015.

The company had about 5,400 employees at the end of 2011. It plans to continue hiring new employees when necessary.

Following a three-month review of its businesses, Reynolds said it is making the cuts so it will have the resources to maintain growth for its key brands.

“This is part of an ongoing cost exercise inside the company. I know sometimes to the external audiences it feels a bit episodic … but for us, really this is a mind-set within the company,” CEO Daniel M. Delen said during a presentation at the UBS Global Consumer Conference in Boston. “It gives us a lot of flexibility.”

The company had first announced the review in February and confirmed it had laid off workers at a manufacturing plant in Tobaccoville. It had previously closed two cigarette plants — one in its headquarters city and another in Puerto Rico.

Reynolds said the weak economy and high unemployment have created a difficult market and intense promotional activity. It said promotions by competitors hurt its sales in the fourth quarter, as sales of Camel cigarettes fell 4.5 percent in the fourth quarter and the Pall Mall brand posted weak growth.

Cigarette volumes have declined annually by about 3 percent in recent years and have fallen significantly since a 62-cents-per-pack federal tax increase in 2009. Additional state tax hikes, smoking bans, health concerns and social stigma have made the cigarette business tougher. Consumers also face economic challenges, and unemployment remains high.

“The very challenging economic times, they have had an impact on the consumer,” Delen said, adding that smokers are trading down to cheaper cigarettes or turning to other tobacco products.

Like other tobacco companies, Reynolds also has been focusing on cigarette alternatives such as cigars, snuff, and chewing tobacco and snus — small pouches filled with tobacco that users stick between the cheek and gum — for future sales growth.

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