Tobacco merchant Reynolds American Inc. (NYSE: RAI) reported first quarter earnings this morning, and posted a clear miss. Adjusted EPS came in at $0.63, lower than the consensus estimate of $0.65. Revenues totaled $1.93 billion, lower than the $1.99 billion in the same period a year ago, and lower than the consensus estimate of $1.98 billion.

Last week Philip Morris International Inc. (NYSE: PM) reported better than expected earnings and revenues, and Altria Group Inc. (NYSE: MO), Philip Morris’s US counterpart, reports earnings on Wednesday. Lorillard Inc. (NYSE: LO) reports earnings tomorrow, and British American Tobacco plc (AMEX: BTI) has not yet scheduled its earnings release.

Reynolds, like Philip Morris, was able to raise prices during the first quarter, but unlike its competitor, Reynolds experienced a decline in volume. However, Reynolds expects to meet its existing full-year adjusted EPS guidance of $2.91-$3.01.

Lorillard, which reports earnings tomorrow, is expected to post EPS of $2.00 on revenue of $1.2 billion. Altria, reporting on Wednesday, is expected to post EPS of $0.49 on revenue of $4.01 billion.

All the cigarette makers are facing a packaging challenge that is set to take effect in Australia by the end of this year. Packaging would be standardized with no logos allowed. Instead, makers would be required to include graphic images of the diseases caused by cigarettes along with the brand name in a generic type style. British American Tobacco, and others, are challenging the Australian law, and all could soon be challenging similar laws in New Zealand, Canada, Belgium, Iceland, and France.

Far worse, from the tobacco companies’ point of view, would be the adoption of similar laws in the emerging markets of Asia, where sales are growing. There has been no evidence that such laws will be enacted, but the tobacco companies are keeping a close eye on developments.

From an investors point of view, the tobacco companies are particularly attractive for their dividend yields. Reynolds yields 5.40%, Altria yields 5.10%, Philip Morris yields 3.50%, Lorillard yields 4.50%, and British American yields 5.30%.

Shares of Reynolds are off about -1.7% in the pre-market at $41.00 in a 52-week range of $31.82-$42.81.

Paul Ausick

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