RJR Plans 2,600 Layoffs in Global Tobacco Business
RJR Nabisco Holdings Corp. said Tuesday that the company’s international tobacco business will lay off 2,600 employees--14% of its foreign work force--in a major restructuring that will also include a $310-million charge against fourth-quarter earnings. Company officials said the job cutbacks will enhance RJR’s competitive position in the increasingly important international tobacco arena and improve its long-term earnings growth prospects. The company’s best-known cigarette brands are Winston and Camel.
“The international tobacco business has become an increasingly important source of earnings for RJR Nabisco and can be the most significant driver of our future tobacco earnings growth,” Chairman Steven F. Goldstone said in a statement.
“These changes will add operating and marketing efficiencies and reduce costs to generate the resources needed to enable Reynolds International to put even more aggressive levels of investment behind its best growth opportunities.”
The moves will result in pretax savings of $170 million a year, starting in 2000, Goldstone said.
RJR also said that its domestic tobacco unit, R.J. Reynolds Tobacco Co., will restructure several parts of its operations, including the closing of a tobacco-leaf-processing facility in Brook Cove, N.C. The closure is expected to result in the layoffs of 190 full-time employees and the elimination of 200 seasonal jobs.
Two leading tobacco analysts said the moves make sense. “They’re having a bad year and when you’re having a bad year, taking a bath at the end makes sense,” said Gary Black of Sanford Bernstein & Co. “Basically, their international tobacco business has been suffering with a high cost structure and too dispersed a manufacturing base,” said Marc Cohen, investment analyst at Goldman, Sachs & Co.
“They’re going to close a few plants, reduce the head count and hopefully create some spending capacity to invest in their brands and perform better. I think those things are positive but the stock market will take a wait-and-see attitude.”
The company’s stock fell 13 cents a share Tuesday to close at $36.25 on the New York Stock Exchange.
The announcement comes as Congress is about to consider major tobacco legislation that could lead to big price hikes on cigarettes as well as major restrictions on advertising and marketing. In combination, that is expected to shrink U.S. sales and increase the importance of the international business for all the nation’s cigarette companies.
RJR’s international division already operates in 170 countries and accounts for one-fourth of the firm’s profit, according to spokeswoman Carol Macovich. RJR’s international division badly lags rivals Philip Morris and BAT Industries in sales, though the firm is No. 2 in the U.S. market.
Macovich said that Tuesday’s slash of its international work force is not related to the pending tobacco legislation. “This is about growing the business in the future. What we’re doing here is redeploying resources so we an put them where the investment will generate the best growth.”
Cohen agreed. “Their business in Europe is lousy and they’re fixing it,” he said. “They need to fix it” regardless of what Congress does.
In addition to the other moves, RJR will reduce its international cigarette inventory with retailers and distributors. Macovich said the company expects that will cut fourth-quarter sales by $150 million and operating income by $85 million.
RJR has said that it plans to spin off its 80.5% stake in Nabisco as early as next year, depending on what happens with the pending tobacco legislation.
