Tobacco Maker Reynolds American To Cut 10% Of Staff

Reynolds American Inc. (NYSE: RAI), the second-largest U.S. tobacco company, said Wednesday it would eliminate 10 percent of its workforce, or around 540 workers, by the end of 2014 to save money and refocus its business.

The Winston-Salem, N.C., company said most departures would be voluntary and they would be offset by new hires, ultimately generating $25 million in savings by the end of 2012 and $70 million annually by 2015. The cost of the layoffs, including serverance pay, will be around $110 million, a charge that will be recorded in its first-quarter earnings report.

Those relatively high numbers -- over $129,000 in savings per employee laid off by 2015 -- as well as Reynolds' statement that it would be offsetting staffing levels by hiring new workers, may indicate the firm might be getting rid of older, higher-paid workers to hire younger ones at reduced salary.

In order to sustain that growth, we need to ensure we have the financial resources and employees aligned behind the right programs and processes, Chief Executive Daniel M. Delen said in a statement, noting our businesses' four key brands are all on a growth trajectory.

The company is making the cuts after finishing a three-month review. It said it would focus on its brands, which include Camel, Pall Mall and Winston.

Reynolds has been weighed down by the broader economic downturn and high unemployment rate, and sales of Camel fell 4.5 percent in the fourth quarter. It has been expanding into smokeless tobacco, acquiring the second-largest U.S. smokeless company, Conwood, in 2006.

The company's subsidiaries include R.S. Reynolds Tobacco Co., American Snuff Co., Santa Fe Natural Tobacco Co. and Niconovum, producer of nicotine replacement Zonnic.

The company earned $1.5 billion in 2011 and 2010, after earning $1.4 billion from 2007 to 2009, according to S&P Capital IQ. It returned most of that money to shareholders as dividends.

Shares of Reynolds fell 53 cents to $41.33 in Wednesday afternoon trading.

(Eleazar David Meléndez contributed to this article)