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Tobacco profits heat up
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October 22, 1996: 9:25 p.m. ET
Companies post strong quarterly earnings, but investors still wary.
From Correspondent Allan Dodds Frank
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NEW YORK (CNNfn) -- Three major tobacco companies reported strong quarterly earnings this week, but their gains failed to light any fires under investors.
The Marlboro Man paced industry leader Philip Morris to record cigarette sales, propelling its market share to nearly 50 percent. Marlboro accounted for one of every three cigarettes sold in the United States, pushing Philip Morris's third quarter earnings nearly 15 percent to $1.6 billion. But shares still have struggled since Friday.
"They are really marketing extremely well. They are also marketing very aggressively and gaining share in international markets," said Ronald Morrow, tobacco analyst for Rodman & Renshaw.
RJ Reynolds reported Monday net income was up 11 percent, mostly on the back of its leading tobacco brand, Camel.
But two other major brands, Salem and Winston, were off, victims of the Marlboro Man's stampede.
Salomon Brothers Tobacco Analyst Diana Temple said although RJ Reynolds is doing good things, Philip Morris has too much momentum. (182K WAV) or (182K AIFF)
A third conglomerate with major tobacco holdings, American Brands, also reported profits up 11 percent. Half those earnings came from Gallahers, the company's English tobacco unit.
But the strong cash flow from tobacco was not enough to offset investors' concerns about litigation against cigarette makers as well as a new scientific study supporting beliefs that smoking does cause cancer.
The industry did get a small dose of good news from a new scientific study funded in part by Philip Morris. The study, which takes pains not to encourage smoking, found that nicotine apparently reduces the risk of suffering from Alzheimer's' disease.
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