But earnings for the maker of Camel, Pall Mall and Natural American Spirit cigarettes, excluding one-time charges, rose about 6 per cent as consumers bought more smokeless tobacco brands like Grizzly and Kodiak.
Smokeless tobacco sales, as well as higher prices and productivity gains, offset cigarette volume declines and increased promotional spending.
Reynolds American Inc., based in Winston-Salem, N.C., said its net income fell to $139 million, or 25 cents per share, for the three-month period ended Dec. 31, down from $304 million, or 52 cents per share, a year ago. Adjusted earnings were 76 cents per share, beating Wall Street expectations by three cents.
Revenue excluding excise taxes fell slightly to $2.08 billion. Analysts polled by FactSet expected $2.06 billion.
Citi analyst Vivien Azer said Reynolds had a "solid finish in a tough competitive environment," in a note to investors.
The number of cigarettes sold by its R.J. Reynolds Tobacco Co. subsidiary fell about 3 per cent during the quarter to 17.1 billion, compared with its estimate of a total industry decline of less than 1 per cent. It sold 5.5 per cent more of its Pall Mall brand and volumes of Camel fell slightly. The brands account for more than 60 per cent of its total cigarette volume.
Camel's market share remained stable at 8.6 per cent of the U.S. market, while Pall Mall's market share grew 0.3 percentage points to 8.9 per cent.
The company has promoted Pall Mall as a longer-lasting and more affordable cigarette for smokers who are weathering the weak economy and high unemployment. The company has said that half of the people who try the brand continue using it.
The number of Santa Fe Natural Tobacco Co.'s Natural American Spirit cigarettes it sold grew more than 20 per cent to about 800 million.
Reynolds American and other tobacco companies are focusing on cigarette alternatives such as snuff and chewing tobacco for growth as tax hikes, smoking bans and social stigma make the cigarette business tougher.
Volume for its smokeless tobacco brands rose 7 per cent compared with a year ago. The brands had a 32.6 per cent share of the U.S. retail market, which is tiny compared with cigarettes.
Reynolds American also said it expects full-year adjusted earnings in the range of $3.15 to $3.30 per share. Analysts expect earnings of $3.12 per share.
Company shares slipped 82 cents to $43.40 in premarket trading.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.