When food and tobacco giant Philip Morris gave Wall Street investors a recent update on its financial health, it released a little-noticed but startling fact: For the first time in the company's 75-year history, it made more money selling cigarettes to foreigners than to Americans.
Given tobacco's uncertain future in this country, that news looked like a example of smart corporate diversification. Americans may be avoiding cigarettes in droves and the federal government threatening to regulate tobacco like a drug, but at least foreigners are coming to Marlboro Country.
But like so much in the tobacco business, even this silver lining is clouded by unexpected problems.
International operations have indeed bolstered profits, but by focusing operations overseas and importing tobacco, the tobacco companies have contributed to layoffs at home and a steady squeeze of U.S. tobacco farmers.
The result: once-loyal supporters of the big tobacco companies have disappeared, leaving the companies vulnerable as they face an implacably hostile Congress.
These endless problems with tobacco are forcing the nation's two cigarette-making and food-processing giants -- Philip Morris Cos. and RJR Nabisco Holdings Corp. -- to ask a question that would have been unthinkable a few years ago: Is lucrative tobacco worth all the hassle?
The answer may be no. Both companies are weighing radical plans to dump their tobacco divisions, a move that would strip them of tobacco's fat profits but also free them from its endless series of lawsuits, taxes and restrictions. And just last month , the nation's fourth-largest tobacco manufacturer, American Brands Inc., announced that it was selling its tobacco division to a British company.
"It's crunch time for the tobacco companies. Diversification has not been working as well as they thought, and even overseas expansion has its drawbacks. There's no clear way out for them," said David Tice, a tobacco industry analyst based in Dallas.
Only a few years ago, making cigarettes was anything but the problem child of U.S. industry.
As the 1980s drew to a close, corporate raiders fought for the right to own RJR Nabisco and its Camel, Winston and Salem cigarette brands. When the buyout of RJR was completed in 1989, new owners Kohlberg Kravis Roberts & Co. had spent $29.6 billion in a leveraged buyout of the company, going massively into debt on the premise that tobacco could easily pay it all off in short order.
