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Once-Wheezing Philip Morris Lights Up Dow Jones

Tobacco: The cigarette maker was the index's top performer in 2000, when its shares gained 90%.


NEW YORK — Although its U.S. tobacco unit was tagged with an eye-popping damage award on behalf of Florida smokers last summer, Philip Morris Cos.'s stock has been an unlikely top performer in the last 12 months.

Shares are selling in the mid-$40 range, more than twice where they were at the end of January 2000. (The stock closed at $45.79 Thursday, up $1.79.) It scored the biggest percentage price rise among the stocks that made up the Dow Jones industrial average in 2000, gaining 90% at a time when most major market indicators lost ground.

The rebound comes even as the tobacco industry continues to be pounded by smoking critics and is on the defense in various courtrooms in tobacco-related cases. Other tobacco companies scored price gains over the last year as well--R.J. Reynolds Tobacco Holdings Inc. is up more than threefold from its depths in March 2000.

Philip Morris is the world's leading cigarette maker. Its brands include Marlboro and Merit and account for about half of U.S. cigarette sales. It's also second only to Nestle SA in food products--its holdings include Nabisco, Kraft, Oscar Mayer and Miller Brewing Co.

On Wednesday, it reported 2000 earnings of $8.5 billion, or $3.75 a share, up from $7.68 billion, or $3.19 a share, in 1999. Revenue rose to $80.4 billion from $78.6 billion.

Tobacco stocks had limped into 2000 under a legal cloud and were out of favor on Wall Street, which was infatuated with technology stocks.

The companies were defendants in Florida in the nation's first smokers' class-action lawsuit to go to trial, and the Justice Department was pushing ahead with its suit that accused tobacco makers of concealing for decades the dangers of smoking. Suits were also piling up on behalf of individual smokers, health insurers, pension funds and others.

In July, a Florida jury ordered Philip Morris and four other major tobacco companies to pay a staggering $145 billion in punitive damages in the class-action suit on behalf of hundreds of thousands of sick smokers. Philip Morris' share was to be nearly $74 billion.

But the tobacco makers are appealing, and many Wall Street analysts expect the verdict will eventually be overturned. And in Brooklyn, N.Y., last week, a mistrial was declared in a case accusing the companies of conspiring to mislead former asbestos workers about a "lethal synergy" of cigarette smoke and asbestos.

Republican George W. Bush's election as president was also seen as a plus for cigarette makers. Some analysts expect the new administration to drop the federal suit against the industry and be less aggressive about taxes and regulations.

"The legal environment improved," said David Adelman, who follows tobacco stocks for Morgan Stanley Dean Witter.

Profits at Philip Morris grew despite declining U.S. cigarette sales as the industry repeatedly boosted prices to pay for its 1998 settlement with the states over health costs for treating sick smokers. The industry is paying the states more than $246 billion over 25 years and accepted restrictions on how it markets its products.

The average price of a pack of cigarettes was $2.95 at the end of 2000, up from $1.96 in the quarter before the 1998 settlement, according to figures from Martin Feldman, tobacco analyst at Salomon Smith Barney.

Philip Morris also expanded its food business late last year by acquiring Nabisco Holdings, maker of Ritz crackers, Oreo cookies and LifeSavers candies, for about $15 billion. Its plans to sell up to 15% of its combined food business in an initial public offering by early summer has drawn more attention to its non-tobacco holdings.

Finally, Wall Street's sharp devaluation of technology stocks has helped mainstays like Philip Morris, whose products sell even when the economy slows.

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