Profits at tobacco company RJ Reynolds, which makes Camel and Salem cigarettes, more than doubled in the second quarter to $151 million (€125.5 million), well ahead of expectations.

The group's new parent company, Reynolds American Inc, formed at the end of July as a result of the combination of RJ Reynolds Tobacco and British American Tobacco, said that while sales fell, profit growth was driven by restructuring.

Second-quarter net sales fell 5.5 per cent to $1.35 billion and total shipments fell 5.9 per cent to 20 billion cigarettes. RJ Reynolds earned $1.77 per share in the second quarter. Analysts expected $1.05 to $1.33 per share, with an average forecast of $1.24.

Smith Barney analyst Ms Bonnie Herzog, who has a "buy" rating on the shares, said she expected the stock to rise since Reynolds American will have a higher weighting in the S&P 500 index, "which could result in possible demand from index investors of around five million shares."

Reynolds American, based in Winston-Salem, North Carolina, is the number two US cigarette maker behind Altria Group's Philip Morris USA. The deal to combine RJ Reynolds and BAT'S Brown & Williamson Tobacco was announced in October 2003, a month after RJ Reynolds unveiled plans to slash 40 per cent of its workforce and focus on marketing Camel and Salem.

Ms Herzog said the second-quarter results showed again that "RJR's restructuring efforts continue to pay off".

Mr Andrew Schindler, who was chairman and chief executive of RJ Reynolds and is now executive chairman of Reynolds American, said the company was well on the way to achieving its goal of $1 billion in cost savings by the end of 2005.

He said he was confident the group would achieve $550-$600 million in merger-related savings within about two years. - (Reuters)