WINSTON-SALEM (AP) -- R.J. Reynolds Tobacco Holdings Inc.'s second-quarter net income beat expectations, helped by higher selling prices that offset lower sales volume.

In the three months ended June 30, the Winston-Salem-based cigarette maker saw earnings rise to $109 million, or $1.07 per share, on revenue of $2.08 billion. Excluding an adjustment in a tobacco settlement-related charge, the company earned $1.05 per share. The results beat the consensus expectations of $1.04 of analysts surveyed by First Call/Thomson Financial. In the year-ago period, R.J. Reynolds earned $2.38 billion, or $21.88 per share, due primarily to a gain on the sale of discontinued operations of $2.65 billion. Earnings from continuing operations, excluding a number of one-time items, in the year-ago period were $98 million. Revenue for the year-ago quarter was $1.91 billion. Shares of R.J. Reynolds fell 56.3 cents to $28.188 per share midday Thursday on the New York Stock Exchange. ``Higher net income and the success of our continuing share repurchase initiative contributed significantly to solid second quarter results,'' said Andrew J. Schindler, RJR chairman and chief executive officer. The latest results did not reflect the latest reorganization plans involving Nabisco Group. R.J. Reynolds Tobacco was spun off from RJR-Nabisco more than a year ago to separate the cigarette business, with its rising liability issues, from the candy and food business. Philip Morris Cos. announced last month it intended to acquire Nabisco Holdings, which makes Ritz crackers, Snackwell's snacks, Oreo cookies and Life Savers candy. Parent company Nabisco Group said that after shedding the Nabisco Holdings unit, what remained of the group -- essentially its cash from the Nabisco sale -- would be sold back to R.J. Reynolds Tobacco for $9.8 billion. Under R.J. Reynolds' stock repurchase plan, instituted in November 1999, it has bought nearly 8.3 million shares, about 7.5 percent of shares outstanding, for about $170 million. The company's board of directors has authorized up to $225 million to buy back shares. Profits rose despite a decline in sales volume, a factor the company attributed to higher prices. R.J. Reynolds' volume for the second quarter, excluding Puerto Rico and certain other territories' volume, was 24.6 billion units, down 1.8 percent from 25.0 billion units in the year-ago period. The company reported that Camel continued to gain retail share of the market during the quarter, while its Salem, Winston and Doral brands saw slight decreases. Overall, R.J. Reynolds Tobacco retail share of market during the three-month period was 23.24, declining from 23.52 in the previous three months. The company's earnings report included no mention of the $145 billion in punitive damages that a Florida jury last week ordered five major tobacco companies, including R.J. Reynolds, to pay to sick Florida smokers. R.J. Reynolds was ordered to pay $36.28 billion as part of the award. The companies have said they will appeal the ruling. For the six months ended June 30, the company earned $189 million on revenue of $4.01 billion, compared with earnings of $2.47 billion on revenue of $3.59 billion in the year-ago period.

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