R.J. Reynolds to Cut 40 Pct. of Workers

Faced with stiff competition from discount brands, R.J. Reynolds Tobacco, the nation’s second largest cigarette maker, will cut about 2,600 jobs, or 40 percent of its work force, the company announced Wednesday.

“Reynolds Tobacco is fundamentally changing the way it operates its business in order to deliver profit growth,” said Andrew J. Schindler, chairman and chief executive officer of RJR.

Its shares rose more than 11 percent in midday trading on word of the restructuring.

The announcement comes as the major cigarette makers are facing increasing competition from lower-priced cigarettes. That has driven them to boost promotional spending such as offering two packs for the price of one to protect their brands.

In July, RJR said its profit fell 67 percent and sales dropped 16 percent in the April-June period in part because of higher promotional costs.

On Wednesday, Schindler said the company plans to trim its expenses by $1 billion by the end of 2005 and will focus its spending on premium brands, such as Camel and Salem. RJR will place less emphasis on other brands, including Winston and Doral, he said.

“Given the continuing challenges in the domestic market, it’s critical that we position ourselves for future profit growth,” Schindler said.

In a conference call, Schindler and Diane Neal, RJR’s chief financial officer, emphasized that that the company was changing the way it does business. Such scrutiny will continue, Schindler said.

“We will continue to re-evaluate our marketplace strategies and tactics,” he said. “Our goal is to grow profits and reward shareholders.”

In response to an analyst’s question, Schindler said the moves announced Wednesday were not connected to any possible mergers.

“This has nothing to do at all with any deals in the future whatsoever,” he said.

Earlier this summer, published reports speculated on a possible merger involving R.J. Reynolds and British American Tobacco PLC, the parent company of rival Brown & Williamson Tobacco Corp.

The merger talk highlighted the dire situation facing the major American tobacco companies because of higher taxes, settlement payments to state governments for health costs of treating sick smokers and competition from deep discount brands.

Besides slashing its profit forecasts, RJR has given up its sponsorship of the NASCAR auto-racing series known as the Winston Cup as it looks for ways to save money.

The job cuts “involve all areas of the company,” meaning both blue- and white-collar workers will lose their jobs, company spokesman Seth Moskowitz said.

RJR employees who lose their jobs will receive two weeks’ base pay for every year of service, with a minimum of 13 weeks’ pay and a maximum of 78 weeks. They were notified of the job cuts by press release Wednesday morning.

RJR will take a third-quarter restructuring charge of about $340 million, or about $205 million after taxes.

The company has also started looking at other ways to cut costs, including consolidating facilities and outsourcing some work.

The company is second in U.S. cigarettes to Altria Group’s Philip Morris USA division, and has been reviewing its business since April.

In midday trading on the New York Stock Exchange, RJR shares rose $3.91, or 11.4 percent, to $38.10.