The company plans to trim expenses by $1 billion by the end of 2005.

CHARLOTTE, N.C. (AP) – Faced with stiff competition from discount brands, R.J. Reynolds Tobacco will cut about 2,600 jobs, about 40 percent of its work force, in an effort to trim costs, the company announced Wednesday.

“Reynolds Tobacco is fundamentally changing the way it operates its business in order to deliver profit growth,” said Andrew J. Schindler, chairman and chief executive officer of RJR.

Schindler said the company plans to trim its expenses by $1 billion by the end of 2005 and will focus its spending on premium brands, such as Camel and Salem. RJR will place less emphasis on other brands, including Winston and Doral, he said.

“Given the continuing challenges in the domestic market, it’s critical that we position ourselves for future profit growth,” Schindler said.

Spokesman Seth Moskowitz said the cuts involve all areas of the company, including both blue collar and white collar jobs. RJR employees were notified of the job cuts by press release Wednesday morning.

Last month, RJR’s parent company said its quarterly profit and sales fell sharply from year-ago levels because of increased competition from discount cigarette brands.

“It’s a very challenging marketplace,” Schindler said. “We’ve come to grips with the intensive competitive nature of this marketplace.”

Schindler said the moves announced Wednesday were not connected to any possible mergers.

In July, 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.

The merger talk highlighted the dire situation facing the major American tobacco companies because of higher taxes, settlement payments to state governments and competition from deep discount brands.

Besides slashing its profit forecasts, RJR has given up its sponsorship of the NASCAR auto-racing series known as the Winston Cup as it looks for ways to save money.

The company has also started looking at other ways to cut costs, including consolidating facilities and outsourcing some work.

“We are making major changes in the way we operate this business,” said Diane Neal, the company’s chief financial officer.

RJR will take a third-quarter restructuring charge of about $340 million, or about $205 million after taxes.

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