RJR Nabisco Reports $447-Million Loss
RJR Nabisco Holdings Corp. on Tuesday reported a net loss of $447 million for the third quarter as income from its domestic cigarette business declined.
The loss contrasted with a net profit of $355 million in the third quarter of last year.
The consumer products giant was taken private in October, 1988, in a $24.53-billion leveraged buyout by Kohlberg Kravis Roberts & Co. Therefore, there are no per-share figures for the latest results.
Revenue for the three months ended Sept. 30 was $3 billion, down from $3.2 billion a year earlier.
The company said strong performances by its food and foreign tobacco businesses were more than offset by the decline in its domestic cigarette income, caused by a program to eliminate excess inventories.
Inventories became inflated because of a practice known as trade loading, in which the company essentially induced wholesale customers to buy more product--in this case, cigarettes--than they could quickly resell.
RJR Nabisco decided earlier this year to end the practice, also used by other domestic cigarette makers and in other industries. The practice effectively overstated operating profits in RJR Nabisco’s tobacco division by about $250 million in recent years, the company said.
Unit sales of cigarettes have been declining in the United States, helping to bloat inventories that then had to be scaled back when the company decided to end the practice.
“RJR Nabisco made substantial progress in the third quarter,” Chairman Louis V. Gerstner Jr. said in a statement. “Excluding our decision to reduce U.S. tobacco trade inventories, our food and tobacco businesses showed excellent earnings growth.”
Gerstner said the company is ahead of schedule in its program to divest assets.
RJR Nabisco recently announced an agreement to sell its Baby Ruth, Butterfinger and Pearson candy businesses to Nestle Foods Corp. for about $370 million. It also agreed to sell its Nabisco food businesses in Spain and Portugal to a Spanish company for $77.5 million.
The latest sales brought the company close to its goal of divesting $5.5 billion in assets to raise cash and reduce debt.
