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EARNINGS

Slow Sales, Legal Costs Cut RJR Profit 50%

January 28, 2000|From Bloomberg News

R.J. Reynolds Tobacco Holdings Inc. said its fourth-quarter profit from operations fell 50%, in line with analyst expectations, on higher legal settlement costs and a decline in U.S. cigarette sales.

The nation's second-largest tobacco company, whose brands include Winston, Camel and Salem, said profit from continuing operations fell to $85 million, or 79 cents a share, from $169 million, or $1.55, a year ago.

RJR, along with the rest of the U.S. cigarette industry, raised prices by 18 cents a pack in August. Revenue rose 29% to $1.98 billion in the quarter. Yet the higher prices led smokers to switch to discount brands, pushing RJR's U.S. shipments down about 13%, more than the industry's 6.5% decline.

In the latest quarter, RJR said about $544 million in payments tied to a landmark industry settlement in 1998 were accounted for as a cost of doing business, whereas a year ago they were tallied as a charge against earnings.

"RJR's major issue is that its premium brands continue to lose share against [Philip Morris Cos.'] Marlboro," analyst James Brucculeri at Merrill Lynch & Co. said. He rates RJR's shares "accumulate."

RJR said its share of the U.S. retail cigarette market fell 0.9% to 24.1% in the three-month period ending in November.

U.S. cigarette makers agreed in November 1998 to a $206-billion settlement with 46 states that sought reimbursement for the public cost of treating smoking-related illnesses.

The latest quarter was R.J. Reynolds' third period as a stand-alone company. It was spun off in June from RJR Nabisco Holdings Corp., now called Nabisco Group Holdings Corp., which sold its international tobacco business to Japan Tobacco Inc. in May. R.J. Reynolds is based in Winston-Salem, N.C.

The company's shares closed up 6 cents at $18.56 on the New York Stock Exchange.

At a Glance

Other earnings, excluding one-time gains or charges unless noted:

* Baxter International Inc., the world's second-biggest maker of medical products, said fourth-quarter earnings rose 17% to $248 million, or 84 cents a share, matching analyst forecasts, with a boost from sales of drugs derived from blood and a new anesthetic. Revenue rose 9% to $2 billion.

* Dow Chemical Co. said fourth-quarter earnings rose 36% to $334 million, or $1.49 a share, well above the $1.34 analysts expected, as cost-cutting and increased plastics shipments diminished the impact of rising raw material costs. Sales rose 17% to $5.2 billion.

* Estee Lauder Cos. said fiscal second-quarter profit rose 17% to $113.9 million, or 45 cents a share, a penny above analyst forecasts, fueled by sales of new products, particularly in Asia. The cosmetics company, whose brands include Clinique, said sales jumped 13% to $1.24 billion.

* Gillette Co., the world's largest maker of blades and razors, said fourth-quarter earnings fell 22% to $339 million, or 32 cents a share, matching forecasts, as retailers in Europe and Latin America cut orders to clear out excess inventories. The maker of Mach3 razors, Duracell batteries and other household goods said sales slipped 4.4% to $3.03 billion. Sales have also been hurt by declining demand for Braun electric shavers and Paper Mate and Parker pens, businesses the company is considering putting up for sale.

* Guidant Corp. said fourth-quarter profit rose 38% to $112.3 million, or 36 cents a share, a penny better than estimates. Sales grew 16% to $576.1 million, boosted by demand for its artery-clearing and heart rhythm devices.

* Kellogg Co. said fourth-quarter profit rose 47% to $136.7 million, or 34 cents a share, matching analyst estimates, as sales declined 0.9% to $1.59 billion from $1.6 billion. Cost-cutting and higher sales of its snack foods fueled the earnings gain.

* Eli Lilly & Co. said fourth-quarter profit rose 20% to $671.7 million, or 61 cents a share, as its newer drugs such as the schizophrenia pill Zyprexa made up for a decline in sales of the world's best-selling antidepressant, Prozac. Revenue rose 7% to $2.82 billion, even with a 13% decline in Prozac sales. Lilly put two of its most promising drugs, Zyprexa and the cancer treatment Gemzar, on the market in 1996. Zyprexa sales rose 31% to $1.89 billion in 1999, making it one of the world's top-selling drugs, though it treats a rare disorder. Schizophrenia affects about 1% of the population.

* Maytag Corp. said fourth-quarter profit rose 4% to $71.5 million, or 82 cents a share, better than downwardly revised analyst estimates, with help from increased sales of high-price products such as Gemini double-oven stoves and Hoover vacuums and from year-end rebates to drive sales. Sales rose 9.4% to $1.06 billion. The company had warned in September that earnings would miss forecasts for the second half as it lost sales of lower-price products to rivals, including Whirlpool Corp. Analysts then lowered their estimates from an average 90 cents to 77 cents, according to First Call/Thomson Financial.

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