Philip Morris Plans to Cut 1,900 Jobs in U.S. Work Force
Philip Morris Cos. said it plans to cut 1,900 jobs, or 12% of its U.S. tobacco unit’s work force, through a voluntary early-retirement offer as it moves to trim costs amid a decline in U.S. smoking.
The plan will result in pretax charges of about $290 million in the first half and will generate annual pretax savings of about $160 million, beginning in 1999. Most of the job cuts will be at its plants in Richmond, Va., and Louisville, Ky.
Philip Morris, which has about half of the U.S. cigarette market, is bracing for a further drop in demand. U.S. cigarette sales, which decline about 1% to 2% annually, may fall more if Congress passes a proposed $368.5-billion industry settlement of health-related lawsuits. The accord is likely to result in higher cigarette prices and lower teenage-smoking rates, analysts said.
“Philip Morris has taken a view that cigarette prices will rise--either modestly because of new taxes or aggressively because of a settlement. Either way, it will lead to lower U.S. unit sales,” said Salomon Smith Barney Inc. analyst Martin Feldman, who has a “buy” rating on the company.
The shares of the New York-based company fell 19 cents to close at $41.06 on the New York Stock Exchange.
Feldman said Philip Morris is seeking to protect the profit margin on its U.S. cigarette sales, which in 1997 stood at 44%. The maker of Marlboro cigarettes is the lowest-cost producer among U.S. tobacco companies.
“We’re more productive than we’ve ever been, but we want to be more productive,” said Philip Morris spokesman Nick Rolli.
About 100 of the job cuts are expected to come from the company’s international and corporate units. The company employs 16,200 workers in its U.S. tobacco unit and 152,000 workers worldwide.
The cuts aren’t expected to affect the company’s Kraft food or Miller beer operations.
The proposed tobacco settlement would institute federal regulation of nicotine, as well as strict controls over tobacco advertisements and marketing. In return, the industry would receive protections from punitive damage awards in individual lawsuits, state health-care-costs recovery lawsuits and class-action lawsuits over past actions.
