Tobacco firm cuts jobs to save $1bn

RJ Reynolds, the maker of Camel cigarettes, is to cut 40% of its workforce, about 2,600 jobs, to restore the struggling company to growth.

The business, based in Winston, North Carolina, said yesterday it would refocus its efforts on two of its four main brands: Camel and Salem.

It was uncertain how the announcement might affect the merger talks between RJR and Brown & Williamson, a division of British American Tobacco.

The restructuring is the result of a business review at RJR, which concluded that it needed to cut $1bn (£623m) from its cost base by the end of 2005. The company will take a $340m charge to account for the round of deep job cuts. The effect will be to depress profits this year to between $50m and $80m, down from earlier guidance of up to $250m.

The tobacco industry is in a dire condition, wrestling with continued litigation, higher taxes on cigarettes and lower cost generic rivals. RJR's profits dropped by 67% in the second quarter compared with the same period last year due to lower volume and higher promotional costs. Sales declined by 16%.

"Reynolds Tobacco is fundamentally changing the way it operates its business in order to deliver profit growth," said chief executive Andrew Schindler.

The decision means the company will invest only limited marketing cash into the Winston and Doral brands.

RJR will also cut back on product giveaways and increase the use of direct mail.

"One of their competitive disadvantages is that they focus too much on too many brands," said Smith Barney analyst Bonnie Herzog. "By all means, what it announced was positive."

· Shares in Altria, a division of top US cigarette company Philip Morris, rose sharply in early US trading after the Illinois supreme court agreed to hear an appeal of a $10.1bn verdict against the company's US tobacco business.

The court also slashed in half a $12bn bond that Philip Morris was required to post pending an appeal in the case in which the company was found to have tricked smokers into thinking "light" cigarettes were safer.