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NEW YORK -- Philip Morris Cos., producer of Marlboro, the world's top-selling cigarette brand, backed off from its profit forecasts for next year as bargain-basement cigarettes slashed into company earnings.
The tobacco giant cited industrywide sluggish sales volume that have forced Philip Morris and its rivals to increase discounting and other promotion programs to grow transactions, The Wall Street Journal reported today.
Philip Morris shares fell nearly 14 percent, while shares or RJ Reynolds Tobacco slipped 11 percent, and Carolina Group -- the tracking stock for Lorillard Tobacco -- fell 13 percent. Philip Morris previously said it expected per-share earnings, before special items, to grow 8 to 10 percent for 2003. A new forecast is expected when Philip Morris posts its fourth-quarter results in January.
"There is a very high degree of frustration" among investors, said David Adelman, an analyst at Morgan Stanley. "It's very, very disappointing that this happened after a profit warning in September."
The U.S. cigarette market is undergoing a level of turmoil not seen in nearly a decade, The Journal reported. Smokers have gotten sticker shock from a dizzying series of cigarette-price increases, the result of the $206 billion 1998 multistate tobacco settlement, an unprecedented spate of state excise-tax increases and the tobacco companies' own hunger for larger profits.
Further burdened by a weak economy, a growing number of smokers are quitting or trading down to cut-rate cigarettes made by a host of small, new manufacturers, prompting the majors to boost promotions while also looking to launch a less toxic cigarette.
Dinyar S. Devitre, Philip Morris's chief financial officer, told investors yesterday, "We remain confident about our ability to generate long-term growth."