RJR Nabisco profit dips 54% as domestic sales decline

Discounts, settlement payment also cut earnings

Tobacco industry

April 23, 1999|By BLOOMBERG NEWS

NEW YORK -- RJR Nabisco Holdings Corp., the No. 2 U.S. cigarette maker, said its first-quarter profit fell 54 percent on falling domestic sales, bigger discounts and a payment tied to the tobacco industry's $206 billion settlement.

Profit from operations at the maker of Winston, Salem and Camel cigarettes fell to $83 million, or 24 cents a share, from $179 million, or 52 cents, a year earlier. Analysts had expected the company to earn 28 cents a share.

RJR and industry leader Philip Morris Cos., the maker of best-selling Marlboro cigarettes, offered a 55-cent-a-pack discount on their major U.S. brands to try to keep smokers after prices were raised by 70 cents last year to pay for the industry's $206 billion legal settlement with the states, but that helped RJR's rival more, analysts said.

During the quarter, Philip Morris increased its dominant share of the U.S. cigarette market by 0.1 percentage point to 50.4 percent, as RJR's slipped by 1 percentage point to 24.6 percent.

RJR revenue rose 6.9 percent to $4.22 billion from $3.95 billion, aided by the net increase in cigarette prices.

The quarter also was the first in which RJR rolled tobacco-settlement payments into its operating expenses, rather than treating them as a charge, as it did in the fourth quarter for its initial payment. The cost for the most recent quarter was $500 million.

RJR's increased promotional spending pushed down U.S. cigarette profit 19 percent for the quarter.

International cigarette revenue fell 12 percent, and profit fell 31 percent. In Russia, the devalued ruble and economic weakness have prompted consumers there to switch to cheaper brands.

RJR's results also were hurt by Nabisco, maker of Oreo cookies and Ritz crackers, which said Wednesday that profit from operations fell to $45 million, or 17 cents a share, from net income of $55 million, or 21 cents, a year earlier.

In RJR's recent quarter, the company had charges of $7 million, or 2 cents a share, related to restructuring at Nabisco, which resulted in net income of $76 million, or 22 cents a share.

In the year-ago period, a charge of $199 million, or 62 cents, related to an initial payment for its portion of the industry's settlement with the state of Minnesota, resulted in a loss of $20 million, or 10 cents a share.

Pub Date: 4/23/99

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