RJR Nabisco Healthier Than Many Expected : Earnings: The firm posted a $1.15-billion loss for the year. But cash flow was more than adequate to cover the company’s huge debt payments.

RJR Nabisco on Monday reported 1989 earnings that showed the huge tobacco and food concern is in sounder financial shape than many analysts had suspected one year after history’s largest buyout.

RJR, which was taken private for $25 billion by the Kohlberg Kravis Roberts & Co. buyout firm, reported a 1989 loss of $1.15 billion on net sales of $12.76 billion. But the results show that cash flow from operations--for RJR’s purposes, a more important figure--was easily sufficient to cover payment of the company’s huge debts.

Louis Gerstner Jr., RJR’s chairman, said in a statement that the results from the company’s tobacco and food businesses “exceeded their goals. . . . We’re off to a very strong start.”

Specifically, the results show that the company had operating cash flow of about $3.1 billion, or about 1.8 times the $1.75 billion that the company needed for cash interest payments, said Dirk Van Doren, an analyst with the McCarthy, Crisanti & Maffei bond research firm in New York. “This bodes well,” he said.

Cash flow from operations describes earnings before interest payments, depreciation and taxes are subtracted.

The results were good news for RJR for several reasons. Only last week, the bonds of RJR--and the rest of the junk-bond market--took a drubbing when Moody’s Investor Service, the bond rating agency, abruptly downgraded some RJR issues.

Moody’s cited the poor outlook for tobacco industry sales, which fell 4% last year. RJR last year abandoned its attempt to produce a “smokeless” cigarette and only last month jettisoned plans for the Uptown brand cigarette, which was to be marketed primarily to blacks.

The results for RJR also come as good news for Kohlberg Kravis, which recently has suffered a string of setbacks. In late December, KKR’s $2.5-billion Hillsborough Holdings buyout filed for bankruptcy court reorganization.

Two others KKR buyout deals, Seaman Furniture and SCI Television, have also struggled in the last half year to pay debts.

Analysts said the year-end figures showed relatively good results in RJR’s tobacco businesses. Price increases and cost cutting more than offset a 1.2% unit sales slowdown in the segment, which provides a cash stream that is key to RJR’s debt-repayment plans.

Before corporate expenses were figured in, the tobacco businesses’ contribution to operating income was $2.02 billion, up 5%, RJR said.

RJR’s earnings were reduced by a series of one-time expenses. As RJR had earlier disclosed, the buyout cost RJR $247 million in “transaction” expenses from the buyout. The company also took a $360-million one-time charge for inventories that had earlier been recorded as sales, though it had never been shipped by wholesalers.

The results showed that RJR’s debt expenses jumped to $3.4 billion last year, from $549 million in 1988. Of the total, $2.2 billion was from non-cash charges, such as amortization of goodwill.

Analysts credited RJR executives with cutting costs, but also said the old regime had left much room for savings. One analyst cited the fact that former Chief Executive F. Ross Johnson used a separate corporate plane to carry his German shepherd, Rocco, when he traveled.

“They’ve done a good job cutting, but then, there was a lot to cut,” said the analyst, who asked to remain unidentified.

Gerstner said the company has now “substantially completed” a selloff of assets undertaken in its first year to pay down $5 billion in debt. Among other units, the company sold International Nabisco Brands in June for $2.5 billion, Del Monte Processed Food in September for $1.48 billion and Del Monte Tropical Fruit in September for $875 million.

Analysts said while the 1989 results support the belief of many bond investors that RJR is a sound credit risk, it would be premature to declare the huge leveraged buyout a success. Such a judgment may still be two or more years off, they said.

“A zillion things could still go wrong,” said analyst Van Doren. He also noted that even if the company can meet its interest payments, it doesn’t mean that the buyout will prove highly profitable for KKR’s investors.

RJR has many hurdles ahead. It has pledged that next year it will increase the interest payments on nearly $6 billion in debentures so that the holders of the securities can sell out for their face value.

Because of the recent decline in junk bond prices--including RJR’s--some investors wonder whether the company will be willing, or able, to follow through on the promises.