MD1 - again, it seems that the PR/IR machine at Big MO reacted superbly. Although, it looks like nothing has been spared these last two days. Plus, that article on page B1 of the WSJ probably didn't help much either -- about the Engle v. RJR case -- stating that the case is huge and that finding jurors has been extremely difficult.
Top two tobacco companies spared Russia's woes
By Eric Wahlgren
NEW YORK, Sept 30 (Reuters) - A day after RJR Nabisco Holdings Corp. was forced to cut its profit estimates in crisis-plagued Russia, the world's top two tobacco companies said on Wednesday their smaller stakes in that troubled market spared them from having to issue similar warnings.
No. 1 tobacco company Philip Morris Cos. Inc. said the bulk of its international sales is in more developed markets including Western Europe, where business "remains as strong as ever."
"We see no need at the present time to issue any warnings about earnings," Chris Kircher, a Philip Morris spokesman based in New York, read from a statement.
The maker of the top-selling Marlboro brand conceded shaky economic conditions had affected the company's sales volume in Asia, Russia and neighboring countries. But unlike RJR, the company said it had not temporarily halted cigarette production in the former Soviet Union.
A spokesman for Britain's B.A.T Industries Plc, the world's second-largest tobacco company, said the company did not have the "same baggage" as RJR in Russia, ruling out the need to date for any profit warning.
"We are pretty much on track with our predictions that were outlined at the half year mark," B.A.T spokesman Brendan Brady said from Louisville, Ky. "Yes, business is tough, but we are getting through it."
B.A.T, producer of Lucky Strike, reported cigarette sales volume rose 10 percent in the first six months of the year in its Europe region, which includes the former Soviet Union.
Although the company experienced a 2 percent decline in sales volume in the Asia-Pacific region for the same period, Brady said the company was beginning to see "a turnaround."
Wall Street expects B.A.T to earn 43 cents in the third quarter and $1.44 for the full year, a 2.7 percent decrease compared to a year ago's full year amount, according to First Call, which tracks analysts consensus estimates.
Philip Morris is expected to earn 83 cents per share in the third quarter and $3.16 per share for the full 1998 fiscal year, a modest 8.6 percent increase over last year's full year figure.
Analysts usually expect profit growth in the mid-teens from Philip Morris.
The company's stock closed down 94 cents at $46.06 on the New York Stock Exchange, but was near its year high of $48.13. B.A.T last closed Sept. 4 at $19, off its year high of $23.81.
RJR, the maker of Camel, Winston and Salem cigarettes, said on Tuesday its third-quarter earnings would fall 20 to 23 percent short of Wall Street estimates in part because depressed market conditions and falling cigarette sales in Russia had cut into it Reynolds International unit's sales.
RJR, which has invested hundreds of millions of dollars in production facilities in Russia, temporarily suspended manufacturing there because of the rouble's recent devaluation and generally poor economic conditions.
Analysts said B.A.T and Philip Morris are far less vulnerable to that market's woes than RJR's R.J. Reynolds Tobacco Co., the No. 3 cigarette maker in the world.
Gary Black, an analyst at Sanford C. Bernstein in New York, said he anticipated Philip Morris' earnings will be on target.
"I think that if Philip Morris had a problem like RJR's in Russia, it could offset it because (Russia) is such a small percentage of their business overseas," Black said.
Black estimated Russia represents only about 3.5 percent of the company's international business.
As for B.A.T, Black said the company did not have to fear Russia, but Latin America, where he said the British tobacco giant controls about 56 percent of the market.
"If anybody has emerging market risk, it is probably going to be B.A.T," Black said.
The company said cigarette sales volume for the first six months excluding Mexico was down over last year and mentioned the worsening economic situation in Brazil.
Some analysts questioned when there would be a turnaround for RJR in Russia, where the company made substantial investments to grab market share. But others said the company's stake in the country could pay off in the long run.
"Looking forward, when those markets recover, they are going to see a good benefit from that," said Brian Eisenbarth, an analyst with Collins & Co. in Larkspur Calif.
Analysts said tobacco companies' profits this year in general have been dampened by declining foreign currencies, weakening domestic demand and litigation settlement payouts to states that have sued them to recover the costs of treating sick smokers. |
