Cut in Cigarette Prices Hurts Philip Morris’ Profit : Consumer products: Gains in food, beer and international tobacco sales partly offset drop in revenues from U.S. tobacco sales.

Philip Morris’ move to slash prices of Marlboros and its other premium cigarettes has helped the nation’s biggest tobacco company increase its share of the domestic market, but the gains come at a heavy cost.

Philip Morris Cos. said Monday its earnings tumbled 24.8% in the third quarter as the price war halved its U.S. tobacco earnings.

Domestic cigarette earnings were down 53% for the second consecutive quarter from a year ago. But the company estimated its share of shipments in the U.S. cigarette market had risen 1.6 points to 43.1% from a year ago.

Its North American food business, which includes Post cereals and Oscar Mayer meats, its Miller beer business and international tobacco reported operating gains, partially offsetting the domestic cigarette earnings decline.

The conglomerate earned $971 million, or $1.11 a share, in the three months ended Sept. 30, compared to $1.29 billion, or $1.44 a share, a year earlier.

Revenue edged up 1.4% to $15.21 billion from $15.01 billion a year earlier.

“Our overall results indicate that our business strategies are proving effective in very difficult economic and competitive circumstances,” said Michael A. Miles, chairman and chief executive.

But he warned that lower U.S. cigarette pricing and “continued volatile and difficult market conditions will make our fourth-quarter comparisons unfavorable.”

The results were slightly below the $1.15 a share prediction of a consensus of Wall Street analysts. In trading on the New York Stock Exchange, Philip Morris closed down $1.125 a share at $52.75.

Leigh Ferst, who follows the company for Prudential Securities, said Miles’ reference to tough and unsettled market conditions frightened some investors.

“Some people think the price war isn’t over,” she said. She said others sold to capitalize on the stock’s $9 rise over the past two weeks.

Philip Morris announced in April it was cutting the effective price of the best-selling Marlboro brand by about 40 cents a pack and warned that the cuts would reduce full-year domestic tobacco earnings by up to 40% or $2 billion.

This past summer, it extended the discounts to its other premium brands, including Benson & Hedges and Virginia Slims, and the industry matched them.

In the latest quarter, Philip Morris’ domestic tobacco earnings fell 53% to $615 million as revenue dropped 16.5% to $2.5 billion. Its cigarette shipments fell 1.8% as retailers drew down inventories.

Philip Morris said its share of premium cigarette shipments in the quarter rose to 51%, up 2.3 share points from a year ago.

Marlboro shipments rose 1.4% and its market share rose 1.7 share points to 25.7%.

The company said retail sales data confirm the same trend as in shipments.

Discount brands were blamed for eroding Marlboro’s share of the market earlier in the year, but Philip Morris said the discount segment has lost 3 share points from its May peak of 38% of the overall market.

Its own share of the discount segment of the market rose 1.7 share points to 27.4%, led by gains by its Basic brand.

“It looks like their marketing strategy is working,” said Barry Ziegler, who follows tobacco stocks for A.G. Edwards & Sons Inc. in St. Louis. “But you never know what the competition is going to do tomorrow.”

Philip Morris’ international tobacco business posted a 15.1% rise in operating income on an 11.8% revenue rise.

Operating earnings from its North American food business increased 10.4% on a 3.5% revenue rise for the quarter. Post cereals and Oscar Mayer meats and retail cheese, frozen pizza and food service operations had volume gains, while beverages and turkey products lost ground.

Operating income was off 12.3% from international food operations partly due to unfavorable currency movements.

Miller Brewing posted a 70.9% rise in operating income on a 6.3% increase in revenue compared to a weak period in 1992.

For the first nine months, Philip Morris earned $3.24 billion, or $3.69 a share, down 13.4% from $3.74 billion, or $4.11 a share, in 1992.

Revenue rose 4.5% to $46.2 billion from $44.2 billion a year ago.