https://www.wsj.com/articles/SB1033164829620610353
Marlboro Friday II?
Updated Sept. 30, 2002 12:01 am ET / Original Jan. 21, 2020 8:41 pm ET
Follow-Up: Guilty.com
Last week, shares of cigarette makers were slammed after industry leader Philip Morris cut its profit guidance for 2002. It cited weakness in its domestic operations stemming from a weak economy, higher state excise taxes and inroads from deep-discount brands, which have hurt premium brands such as its flagship Marlboro. Are tobacco stocks going up in smoke?
Philip Morris, often a topic of debate in Barron'sTrader column, now sees 3% to 5% earnings growth in 2002, below its prior guidance of around 9%. But it sees a stronger 2003, with 8% to 10% growth.
Philip Morris fell 4.87, to 37.86, Friday, following its profit warning late Thursday afternoon. It's now down 17.4% this year, not as bad as the S&P 500, which is off 27.9%. Also Friday, R.J. Reynolds, maker of Camel and Winston, dropped 6 points, to 40.16, while Carolina Group, the tracking stock for Lorillard, producer of Newport, slid 2.85 to 18. All hit new 52-week lows.
Philip Morris is now expected to earn about $4.60 a share in 2002, down from Wall Street's prior consensus of $4.82. In a client note, Merrill Lynch analyst Martin Feldman said the warning "suggests a marked deterioration in the quality" of the company's domestic tobacco business, which contributes 30% of overall earnings, and "heightened uncertainty" about the future. The Philip Morris news shouldn't have been a shocker because the company as recently as early September warned of weaker domestic trends, a warning analysts downplayed. A big problem: Average prices of premium cigarettes are far above those of discount brands, so investors fear a repeat of "Marlboro Friday" a decade ago when the company cut prices to protect market share.
Cigarette stocks, however, are discounting a lot of bad news and could prove attractive at current levels. Philip Morris, for instance, trades for just eight times projected 2002 profits, and its stock yields almost 7%. The tobacco seller boosted its dividend 10%, to $2.56 a share in August. Short of a sharp slump in its business or a huge legal setback, the payout is secure.
Philip Morris's tobacco operations are valued at just $13 a share because its 84% interest in Kraft Foods is worth over $50 billion, or $25 a Philip Morris share. A full spinoff of the Kraft stake to Philip Morris holders could come in a few years.
Carolina Group and R.J Reynolds are even cheaper. Carolina trades for five times projected 2002 profits, and Reynolds at six times. Both yield nearly 10%.
-- Andrew Bary
Guilty.com
Homestore trio near close of civil and criminal suits
Home could soon be the big House for three former Homestore executives. The threesome last week settled a suit brought by the Securities and Exchange Commission charging them with fraudulently pumping up advertising revenues at the real-estate portal by $46 million and agreed to cough up penalties and illicit profits totaling $4.6 million. Ex-chief operating officer John Giesecke, ex-CFO Joseph J. Schew and ex-v.p. of transactions John DeSimone neither admitted nor denied the SEC's allegations.
In related proceedings, the trio of former execs last week agreed to plead guilty to criminal charges in U.S. District Court in Los Angeles. Giesecke agreed to plead guilty to one count each of conspiracy and wire fraud, Shew to one count of conspiracy and DeSimone to one count of securities fraud. All could face jail time. (For more on the Homestore saga, see Plugged In.)
Founded in 1999, Homestore was championed from the outset by venture capitalist John Doerr, a partner with Kleiner Perkins Caufield & Byers ("Pied Piper of the 'Net," June 10). From a high of 138 in 2000, the dot.com's shares have tumbled to 33 cents at Friday's close. And while Homestore's defalcations may seem like small beer in this new era of the multibillion dollar scandal, they cannot help but tarnish Doerr's once-glowing reputation. A Doerr spokesperson declined to offer comment.
-- Mark Veverka
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Philip Morris warning burns tobacco shares