U.S. tobacco companies' third-quarter profits are expected to be mixed amid declining cigarette consumption due to price increases and weak demand overseas, industry analysts said.

The nation's biggest tobacco companies pushed through a price hike of 18 cents a pack last month in a move to help foot the $246 billion national litigation settlement as well as stave off inventory build ups before a Jan. 1 federal excise tax increase. Philip Morris Cos Inc.(NYSE:MO - news), the world's largest cigarette seller, with brands such as Marlboro and Virginia Slims, is expected to post quarterly earnings of $0.87 per share, compared with $0.84 a share a year ago, according to earnings forecast firm First Call/Thomson Financial. R.J. Reynolds Tobacco Holdings Inc.(NYSE:RJR - news), the tobacco business that was split from the food division of the former RJR Nabisco Group Holdings earlier this year, is expected to report a profit of $0.99 per share, First Call said. ``The third quarter will reflect the continuing difficult environment created as a result of last year's settlement,'' Martin Feldman, tobacco analyst at Salomon Smith Barney, said. Feldman said he expected tobacco companies to report $1.37 billion in domestic revenue, a 2.2 percent decline from 1998, while international volume should decline by 3 percent. Morgan Stanley Dean Witter tobacco analyst David Adelman said he expected New York-based Philip Morris's domestic volume to be down 10 percent, a key measure of consumer consumption. ``And that's about in line with the industry. But I expect a 2.0 percent fall in profitability, and after what this business has gone through -- in terms of consumer prices up 35 percent year on year -- that is a remarkable achievement,'' he said. Weak demand in Eastern Europe and Russia, along with a decrease in the number of duty-free shops, should drag Philip Morris' international volume down, resulting in flat operating income, analysts said. However, the company's Kraft Foods North America and Miller Brewing Co. units are expected to post quarterly growth in operating income and volume, according to analysts. R.J. Reynolds, on the other hand, continues to suffer from aggressive promotional activity by Philip Morris and weak volume and share performance from its Winston, Camel and Salem brands, in addition to sharp price increases, analysts said. ``In contrast to Philip Morris, which is having per unit profit growth of about 7 percent, R.J. Reynolds' per unit profit decline should be about 6 percent,'' Adelman said. Industry experts said Winston-Salem, N.C.-based R.J. Reynolds' less expensive, less profitable brands and older consumers has hurt their bottom line. ``Compared to Philip Morris' premium brand mix that is flat to up, R.J. Reynolds' mix is flat to down, which is less profitable in this environment,'' Adelman said. ``Reynolds also has older smokers who are more price sensitive and are likely to quit or trade down to cheaper brands after price hikes.'' Looking ahead, tobacco analysts see improving market conditions as consumers adjust to the price increases, which will ease volume decline seen in 1999. ``Tobacco companies have to work their way through 1999, but by early 2000, both the pricing environment and the year over year comparisons will become much more favorable,'' Feldman said. Both Philip Morris and R.J. Reynolds are expected to reported earnings this week.

<< Prev	CIGoutlet.NET News Home	Next >>