Charges Hurt Tobacco Firms’ Net Income

Philip Morris Cos. Inc. and RJR Nabisco Holdings Corp. on Tuesday reported lower earnings for the third quarter as charges for settling tobacco lawsuits hurt results.

But domestic tobacco sales were higher, as wholesalers stockpiled cigarettes in anticipation of higher prices because of additional settlements, the companies said.

Philip Morris reported domestic cigarette shipments up 4%, and RJR said its volume rose 1%.

Philip Morris also said that, apart from the temporary effects of the stockpiling, the industry’s long-term volume decline continued.

Excluding the costs of settling cases filed by Florida and Mississippi and a class-action case brought by flight attendants, earnings at the nation’s two largest cigarette makers were in line with Wall Street’s expectations.

Philip Morris, New York-based maker of Marlboro cigarettes, Miller beer, Kraft cheese and other products, said net earnings fell 15% to $1.41 billion, or 58 cents a share, in the quarter, from $1.65 billion, or 67 cents, a year earlier.

Excluding after-tax charges of $496 million related to settling the lawsuits, net earnings would have been $1.9 billion, or 78 cents a share, matching analysts’ average forecasts.

“The fundamentals of our business remain strong,” Chairman Geoffrey Bible said, citing strength in the cigarette business at home and overseas.

Sales rose 4% to $18.1 billion, from $17.4 billion.

RJR Nabisco, which makes Winston and Camel cigarettes, Nabisco crackers and other products, said net income fell 46% to $122 million, or 34 cents a share, from $225 million, or 66 cents a share, a year earlier.

Excluding settlement costs of $133 million, earnings would have been $255 million, or 75 cents a share, about in line with analysts’ forecasts.

“Legal settlements at Reynolds Tobacco and adverse foreign exchange translation took a heavy toll on the quarter’s results,” Chairman Steven Goldstone said in a statement.

Sales rose 2% to $4.4 billion, from $4.3 billion.

Shares of both companies rose on the New York Stock Exchange. Philip Morris shares climbed $1 to close at $41.69; RJR shares rose 44 cents to close at $33.75.

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Drug makers Schering-Plough Corp. and Bristol-Myers Squibb & Co. reported double-digit third-quarter earnings increases, as a diet drug recall hit American Home Products’ profit.

Madison, N.J.-based Schering-Plough earnings rose 21% to $353 million, or 48 cents a share, from $291 million, or 39 cents, a year earlier.

Bristol-Myers earnings rose 14%, boosted by higher sales of its anti-cholesterol drug Pravachol, to $855 million, or 86 cents a share, compared with $753 million, or 75 cents a share, a year ago.

American Home Products earned $435.53 million, or 67 cents a share, in the third quarter, compared with $491.13 million, or 77 cents, for the same period last year.

Third-quarter 1997 sales included charges of $117 million, or 18 cents a share, due to the company’s recall of the diet drugs Pondimin and Redux, at the request of the Food and Drug Administration.