The cigarette maker will cut 2,600 jobs, or 40percent, and focus spending on its Camel and Salem brands.
By Associated Press
Published September 18, 2003
WINSTON-SALEM, N.C. - In a massive restructuring designed to retreat from stiff discount-brand competition, R.J. Reynolds Tobacco announced the elimination of 2,600 jobs Wednesday, about 40 percent of the company's work force.
Workers whose jobs are being eliminated will be notified over the next week, said Seth Moskowitz, a spokesman for the nation's second-largest cigarette maker.
RJR said it will focus future spending on premium brands Camel and Salem and will only invest enough in the cheaper Winston and Doral brands to try to optimize profits. The company plans to trim spending $1-billion by the end of 2005, chairman and chief executive Andrew Schindler said.
"Reynolds Tobacco is fundamentally changing the way it operates its business in order to deliver profit growth," Schindler said.
Wall Street applauded the move, sending the company's shares soaring by $4.67, or 13.7 percent, to close at $38.86 on the New York Stock Exchange.
RJR, unlike many companies in old-line manufacturing industries, remains profitable. But it and other major cigarette companies have had those profits squeezed in recent years.
Americans are smoking less nowadays, taxes on cigarettes are rising, and major tobacco firms are paying out billions to states to cover smoking-related health-care costs under terms of a 1998 settlement. At the same time, discount brands - made by small companies that aren't subject to the settlement - are gaining market share.
"Basically, we are just stepping up to the realities of business in the tobacco industry today," said RJR spokeswoman Carole Crosslin.
The layoffs are a major part of an effort to save the company $1-billion a year by 2005. RJR, the nation's No.2 cigarette maker behind Philip Morris USA, had $6.2-billion in sales last year.
Between 1,600 and 1,700 of the job losses will occur in the Winston-Salem area, where RJR has its headquarters and a massive factory in Tobaccoville. The positions being cut are well-paid - even factory workers at RJR typically make more than $50,000 annually.
RJR warned of the impending cuts in August, giving workers a chance to request that their positions be considered for elimination. But the size of the cuts still shocked locals.
Moskowitz said Wednesday that 75 percent of the positions eliminated in Winston-Salem were ones workers had requested for consideration.
Of those workers, 90 percent will be eligible for retirement health benefits when their severance runs out, he said.
The company will pay all workers whose jobs are eliminated between 13 and 78 weeks of base pay as severance, with the total determined by length of service with RJR.
Employees interviewed by the Associated Press who declined to give their names when talking about the job cuts Wednesday said they are required to sign a confidentiality agreement that prevents them from discussing information about the company with outsiders.
A worker at the Tobaccoville plant who identified himself only by his first name, Joe, smoked a Camel as he ate lunch at the King Cafe before reporting for his night shift Wednesday. The 48-year-old said he had requested severance from the company and expects to leave.
"I thought when I went to work here in 1980 that I'd put in my 30 years and then retire and play with all my toys," he said. "It didn't work out that way. That's okay."
He said he is worried about paying his bills and did not know how he will replace his lost income.
The major American tobacco companies have been hit hard by higher taxes, settlement payments to state governments for health costs of treating sick smokers and competition from deep discount brands.
Danny Cole, 52, of King, grows 110 acres of tobacco that he sells to RJR rival Phillip Morris. Cole said Wednesday's announcement demonstrates the ongoing decline of tobacco in America.
"We're teetering and tottering and don't know exactly what to do," Cole said.
RJR has had a particularly tough year, slashing profit forecasts and surrendering its title sponsorship of the Winston Cup stock car racing circuit as the company tried to trim costs.
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.
Schindler insisted the job eliminations are unrelated to any merger. "This has nothing to do at all with any deals in the future whatsoever," he said.
Moskowitz said the restructuring gives RJR a chance to focus on the Camel and Salem brands. Camel has been growing for more than 15 years and has spun off numerous niche brands, while Salem, as a menthol cigarette, does not compete with Camel and was recently repositioned with new branding.
The job cuts are another tough blow to North Carolina, which is in a severe budget crisis and is already assisting 5,600 workers who lost jobs when textile maker Pillowtex shut down at the end of July.
- Information from the Charlotte Observer was used in this report.