By Brad Dorfman

CHICAGO (Reuters) - Tobacco company Reynolds American Inc (RAI.N: Quote, Profile, Research) posted higher-than-expected quarterly profit on Wednesday, and its shares rose more than 5 percent as the decline in its U.S. cigarette shipments slowed.

Cigarette price increases also helped that business, while Reynolds' smokeless tobacco segment benefited as more consumers moved to its Grizzly brand from higher-priced competitors.

In the cigarette business, the company's Camel and Pall Mall brands gained market share, while Kool stabilized. The company puts the majority of its marketing support behind those brands. The brands it gives less or no support suffered declines in market share.

"It was a marked sort of improvement (in cigarette shipments) over the first quarter," said Gregg Warren, an analyst at Morningstar. "Instead of a 12 percent volume shortfall, it was only 8 percent."

The company said second-quarter profit rose to $364 million, or $1.24 a share, from $325 million, or $1.10 a share, a year earlier. Analysts' average profit forecast was $1.18 a share, according to Reuters Estimates.

Sales dipped 0.4 percent to $2.34 billion.

Profit rose 5.4 percent in the company's R.J. Reynolds tobacco business. Higher prices and cost-cutting helped offset an 8 percent drop in cigarettes shipped to 23.9 billion cigarettes.

U.S. cigarette consumption has declined steadily since 1981 as more and more bans on smoking in public places are put in place, health messages against cigarettes proliferate, and cigarette makers face marketing limitations from the 1998 tobacco litigation settlement with the states.