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EDITIONS
Tuesday, 12 November, 2002, 22:44 GMT
Cigarette firm out of puff
Smoking
Philip Morris said smokers are switching to cheaper brands
Shares in the world's biggest cigarette maker, Philip Morris, have slumped 14% after the company reduced its forecasts for next year.

The company, which makes the premium cigarette brands Marlboro and Virginia Slims, blamed cheap imports and counterfeit cigarettes which it said were hitting its US business.

It said it could now no longer confirm its growth targets of between 8-10% for 2003.

The company also warned that its share of the US market was falling as smokers switched to cheaper brands.

Cheaper option

Philip Morris' s chief financial officer Dinyar Devitre said the market was "softer than originally anticipated, due primarily to the influx of both cheap imported cigarettes and counterfeit cigarettes".

The company's brands typically sell at prices between 55% and 65% higher than cheaper rivals.


Given the pricing environment, I'm not convinced that Philip Morris will comfortably be able to take a pricing increase during 2003

Martin Feldman, Merril Lynch

The group said it is now trying to narrow that gap to around 45% as its share of the market fell another 1.5 points to 49.2% in the three months to September.

Philip Morris, which also owns 84% of the Kraft Food business, said it still expected earnings for the current year to fall in line with expectations.

However, these forecasts were reduced from 9% to 3% in September.

Hitting hard

The cigarette maker is not the only brand to feel the pinch, with rival tobacco firm RJ Reynolds also issuing a profit warning in September.

But investors were severely disappointed, with shares sliding 14% or more than $6 to $37 on the news.

And analysts warned of more gloom ahead.

"Given the pricing environment, I'm not convinced that Philip Morris will comfortably be able to take a pricing increase during 2003," said Merrill Lynch analyst Martin Feldman.

Philip Morris said it was spending more on promotions and would increase the number of stores offering its cut-price cigarettes.

The company is also appealing against a court order to pay out $28bn (17bn) in damages to a cancer-stricken smoker.

See also:

05 Oct 02 | Business
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