Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, November 25, 1993 TAG: 9311250303
SECTION: BUSINESS PAGE: C1 EDITION: HOLIDAY
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Long
The giant food and tobacco company said the worldwide restructuring, which will result in a $952 million after-tax charge against earnings, was designed to lower costs and make Philip Morris brands more competitive.
The plan includes an as-yet-undetermined number of layoffs. Craig L. Fuller, a Philip Morris senior vice president, did not say where the job reductions - 8 percent of the company's 168,000-person work force - or plant closings would occur.
Philip Morris USA, the company's cigarette plant in Richmond said no one was available to comment and referred calls to the New York headquarters.
The reductions come as Philip Morris tries to rein in costs after it began a cigarette price war earlier this year that has helped it regain market share but hurt earnings severely.
Also, the cuts reflect pressure on consumer product companies as consumers turned to generic and store-label brands to save money during the recession. In July, Procter & Gamble Co. said it would cut 13,000 jobs and close 30 plants over the next four years.
Philip Morris said the new cutbacks were part of a cost-cutting strategy first adopted in 1989 when it took a $179 million restructuring charge for its U.S. Coffee unit.
Fuller said that while some positions will be cut, the plan also envisions work-force reductions through attrition and early retirements.
The company's common stock on the New York Stock Exchange closed Wednesday at $55.62 1/2 a share in heavy trading, up 75 cents from Tuesday's close.
Philip Morris' primary divisions include its Philip Morris tobacco operations, Kraft General foods and the Miller Brewing Co. The company employs 168,000.
The job cuts and plant closings would be distributed throughout the company, Fuller said. "It will not be targeted just at tobacco."
Fuller declined to provide details about when the job cuts would begin or when plant closings might be announced. But he said Philip Morris' companies would reveal plans during the restructuring.
The company said it would charge $457 million after taxes against fourth-quarter earnings to pay for the plant closures or consolidations. Also, it will take an accounting charge of $495 million primarily for severance payments.
Philip Morris said the combined charges would reduce 1993 net earnings $1.08 per share. Excluding the charges, Philip Morris estimated 1993 earnings would be about 16 percent lower than last year.
Fuller said that despite the company's problems in the U.S. tobacco market, its other operating units are profitable and show strong prospects for 1994. He said income from businesses excluding domestic tobacco is expected to increase 13 percent in 1993.
Philip Morris said the restructuring would begin showing reduced operating costs in 1994. By 1997, it is expected to generate after-tax annual savings of about $600 million.
Philip Morris started the tobacco price war in April with the announcement of promotional discounts that effectively cut the price of its leading brand, Marlboro, by 40 cents a pack. The company said it wanted to preserve Marlboro's market share against fast-growing and cheaper discount cigarettes.
This summer, Philip Morris converted the promotional programs into wholesale price cuts and applied it to its other premium brands, Benson & Hedges, Merit and Virginia Slims. The rest of the industry followed.
The strategy appeared to pay off. The company estimated recently its share of shipments in the U.S. cigarette market had risen 1.6 points to 43.1 percent from a year ago.
Discount brands' market share sank to an estimated 33.6 percent in the third quarter from 38.9 percent the first quarter.
While successful, the price cuts came at a severe cost for Philip Morris, which said it expects a decline of up to $2 billion in domestic tobacco operating profit for the year, or about 40 percent from 1992.
Its third-quarter earnings fell 24.8 percent due to the price war's effect on U.S. tobacco earnings. Domestic cigarette earnings were down 53 percent for the second consecutive quarter.
The sharp drop in revenues led the company to consider a number of cost-cutting options, which were presented to the Philip Morris board Wednesday.
Earlier this month, Philip Morris, the nation's biggest tobacco company, agreed to match the moves of its rivals by raising its wholesale prices on cigarettes 4 cents a pack. That signaled an end to the price war, which one analyst estimated cost the tobacco companies about $4 billion in lost profits.
Philip Morris' food and beverage businesses include brands such as Post cereals, Oscar Mayer meats and Miller beer.
\ PHILIP MORRIS IN VIRGINIA
The corporation has 12,600 Virginia employees, according to its most recent statistics in September 1992. That represents 7.5 percent of its worldwide work force of 168,000.
They work at 40 facilities, ranging from major manufacturing facilities to sales offices. Of those, 28 are in the Richmond area.
In the Roanoke Valley, Philip Morris operates two distribution and warehouse facilities for its Kraft-General Foods division. - Source: Philip Morris Cos.
by CNB