What's in a name? Plenty, if that name used to be Philip Morris Co's Inc. In an effort to further separate itself from its US and international tobacco subsidiaries, the parent company with its vast international food, beer and financial services holdings has renamed itself. But will this really help the company to kiss goodbye to the troubles of its past?
Elsevier Food International, Vol. 5, Number 1, February 2002
David Litwak

As of 16 November, 2001 Philip Moris Co's Inc has been re-christened Altria Group. According to a company statement, Altria is a derivative form of the Latin word 'altus: which means 'to reach higher.' No doubt the board of directors hopes that the name change will help the company's stock to do precisely this.
"We are not the same family of companies we were just a few years ago," said Altria's chairman and CEO Geoffrey C. Bible.
Reaching higher or not, most industry analysts claim that the name switch was done to help clear up confusion between the parent company and its tobacco subsidiaries, Philip Morris USA and Philip Morris International. "It's hard to make an argument you're more than a tobacco company when you have a name people associate with tobacco," David Adelman, an analyst for Morgan Stanley Dean Witter told the Philadelphia Enquirer when the name change was first announced. Adelman went on to say that the name change was a logical extension of the company's effort to reshape its image, and that it might help in that cause.
"We want the world to know we are the largest consumer packaged goods company on earth, operating in nearly 200 countries as a responsible manufacturer of quality consumer products, including some of the world's top brands."
These words greeted investors and other readers as they opened Philip Morris' 1999 annual report. Since that time the company has undergone a number of tribulations and changes, including litigations, huge tobacco settlements, leadership changes, plummeting and rebounding stock prices, changes in advertising strategies and the addition of Nabisco. So what's in a name) The saga of a giant corporation attempting to change the course of its own destiny - that's what.

Down but not out
If this profile were being written at the end of 1998 instead of 2001, it might read more like an obituary of Philip Morris Co's Inc. Litigations, bad public opinion and slumping sales had taken all the wind out of the company's sails. By the end of 1998 the company's stock price had dropped to half of what it had been at the beginning of thr year, cutting an estimated $83.2 billion off Philip Morris' stock market value and prompting Bible to refer to his own company a the "dog of the Dow."
In the three years since that statement the company has made a strong rebound, both in terms of sales and in its stock price. Through the settlement agreements on tobacco litigations, the expansion of global marketing, enhancing shareholder value and the acquisition of Nabisco, Philip Morris has once again climbed into investors' favour.
"I am pleased to report that we achieved robust performance across virtually all our businesses and markets worldwide in 2000, as we continued to be guided by a number of long-standing strategies ... In 2000, our share price rose 91.3 per cent, making Philip Morris the best performer in the Dow Jones Industrial Average," Bible wrote in his statement in the company's 2000 Annual Report. "While we are encouraged by this performance, we believe our shares remain undervalued, based on our strong business fundamentals and future growth opportunities."
According to Lebensmittel Zeitung, the corporation's worldwide turnover is estimated now to be €87.57 bn. Altria derives the bulk of its revenues from three distinct industries; tobacco (61 per cent), food (34 per cent) and beer (three per cent The corporation plays a dominant role worldwide in each of those industries. It’s Philip Morris USA and International units comprise the world's leading tobacco company, while its Kraft unit is the world's second largest food company and Miller Brewing is the second largest US brewer and the fifth in the world. Altria also has a financial service division, Philip Morris Capital Corporation, which provides leasing investment opportunities and accounts for about two per cent of the company's revenues.
In its most recent statement, Altria reported that its third quarter results posted a 5.3 per cent rise in third-quarter profits, led by higher cigarette prices and an increase in overall sales overseas. Earnings per share climbed 8.1 per cent to $1.07 per share, compared to $0.99 during the same period last year. Operating revenues jumped 12.1 per cent to $22.4 billion for the quarter. In a speech to analysts in New York, chief financial officer Louis Camilleri said that, despite the tough economy, he expected the company would fully realise its earnings estimates for the year, which represent growth in the neighbourhood of nine per cent and earning estimates of $4.04 - $.05 per share, according to Thomson Financial/First Call. Despite the rosy picture painted by management, some analysts are still weary of the company's prospects. After hearing Camilleri's statement Rob Campagnino, an analyst at Prudential Securities told Business Week "the overall cautious tone was

Some of the vast range of products that fall under the Altria umbrella.

something that stood out to me."
Goldman Sachs is also cautious about Altria's future stock price. On 30 October, the investment company removed Philip Morris Co's Inc from its recommended list, saying profit growth is likely to slow at its domestic and international operations. Analyst Marc Cohen lowered his 2002 estimate to $4.45 and reduced his 12-month price target to $55 to $60 from $65, now rating the stock as a 'market outperformer.' "The company is also facing significant challenges in key cigarette markets outside the US - notably Germany, Turkey and Argentina - which is likely to temper international growth in the foreseeable future," Cohen said.
Altria's strategy for growth is to continue building its three core businesses, especially its food and tobacco interests. If the phrase "in size there is strength" has any truth behind it, then Altria is well-positioned in these two industries. Industry analysts expect that the company will look to foreign markets to help enhance its sales in both tobacco and food. While growth through major acquisitions have not been ruled out, the company has said that none are in its immediate plans. Altria is still busy digesting the Nabisco acquisition.

Where there's smoke, there's profit
Name changes not withstanding, Altria is still very much in the tobacco business.
The company derives more than 61 per cent of its operating revenues from the sale of tobacco products worldwide. In 2000 Philip Morris Co's Inc had total operating sales of about $80 billion, of which Philip Morris USA accounted for US$22.6 bn and Philip Morris International accounted for US$26.4 bn. Together the two tobacco divisions brought in over US$10.5 bn in profits - about 65 per cent of the company's total profit.
Philip Morris USA, according to data compiled by Management Science Associates, has a 50.47 per cent share of the US cigarette market, with the company's sales growing by 15.6 per cent in 2000. On the international side, however, Philip Morris is struggling a little: sales of Philip Morris International were down 4.1 per cent during 2000. Soft tobacco markets in many of the company's market areas is the reason for some of the slip, as is the introduction of lower priced value brands.
"We believe that there is no 'safe' cigarette, and we agree with the overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema and other serious diseases in smokers. In addition, we agree with the overwhelming medical and scientific consensus that cigarette smoking is addictive.
"Moreover, it is a fact that government agencies have concluded that secondhand smoke causes disease - including lung cancer and heart disease - in non-smokers, and many people have health concerns regarding it. In addition, because of concerns relating to conditions such as asthma and respiratory infections, we believe that particular care should be exercised where children are concerned, and smokers who have children -particularly young ones - should seek to minimise their exposure to secondhand smoke." These two paragraphs are part of a written response submitted last February by Philip Morris USA to the preliminary report of the President's Commission on Improving
Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health. This statement amounts to an admission of everything that the tobacco industry has been denying for the past three decades. Philip Morris USA's strategy is now to concede the harmfulness of smoking, and stress its responsibility for insuring that its products do not get marketed to minors.
"Philip Morris USA is committed to responsibly marketing its products to adults who choose to smoke while continuing its efforts to reduce the incidence of youth smoking. The company is fully complying with both the letter and spirit of the tobacco agreement, and has taken further voluntary actions to reduce the visibility of its advertising," said the company's vice president and general counsel, William S. Ohlemeyer. Besides soft sales in some overseas markets, Philip Morris USA and Philip Morris International are still plagued by current litigations and the potential for future litigations. Despite the huge settlement agreed to by members of the tobacco industry with the Attorneys General of 48 states, the company still faces huge awards in other cases, such as last year's $74 billion award against the company in a Florida case. The outcome of this and other cases will greatly affect the future of the tobacco business for Altria. In the tobacco business Philip Morris strategy appears to be that a good defence may be its best offence. The company has attempted to pre-empt any further attacks by down playing its marketing and advertising. In terms of products the company will continue to stress low-price brands, and using technological advances, such as its Paper Select cigarette paper, which is now available on the company's Merit brand.
Philip Morris as such an industry leader in tobacco enjoys a great deal of access to almost every retail channel that distributes cigarettes. This will make it easy for the company to place any new brands or innovations into the market.

Sell the food, sell the company
If tobacco's future may appear to be in limbo, it's nice to have the world's second largest food company to fall back on. Philip Morris continued to boost the dominance of its Kraft Foods by completing the acquisition of Nabisco Brands in late 2000. Worldwide, Kraft accounts for about 26 per cent of Altria's business.
Philip Morris took Kraft public last May with an initial public offering that raised over US$8 bn - the second largest IPO in history. Altria still owns about 80 per cent of the company and 98 per cent of the voting stock. Even with a weakened economy, or perhaps because of it, investors quickly gobbled up both the Kraft IPO and a subsequent US$4 bn in bonds, which Kraft issued at the end of October. "Most likely, Kraft will be a steady performer and pay a handsome dividend even in an uncertain stock market. More importantly, this is perhaps the only company with the muscle to drive a hard bargain with Wal-Mart and other big supermarket chains," Daniel Peris of Argus Research told BusinessWeek.
Kraft projects annual volume growth of between three and four per cent and between 18 and 20 per cent for earnings. Kraft's prospects are considered to be high, so high that Goldman Sachs recently added Kraft Foods to the 'recommended' list.
Once of Kraft's great strengths is the reputation that the company has with both consumers and retailers. The relationship that the company developed over the past 100-plus years is an asset when it comes to the introduction of new products and programmes in the US.
If Kraft has one weakness it's in its overseas business. While some of Kraft's brands are powerhouses across the globe or in individual overseas markets, analysts complain that Kraft does not have the market presence in many places that some of its competitors have. Especially vulnerable are Kraft's convenience meals brands, which are slow to catch on in markets with weaker economies.
Despite its apparent lack of a huge presence in certain foreign markets, Kraft is expecting a large portion of its future growth to come from outside the US. The company has said that it will make a series of major pushes to establish Kraft and its products as household

Lift the glass
The third leg of the Altria empire is Miller Brewing. Despite being the nation's second largest brewer and fifth in the world, Miller still lags behind Anheuser Busch on almost all fronts. Last year was a tough one for Miller, with sales and volume dropping from the first quarter on. During the early part of the year sales were down 5.1 per cent in volume and income was off 18.4 per cent. According to industry analysts Miller may soon be sold. Beer Industry analyst John Faucher of Morgan Stanley told the Journal Sentinel, "We think [Philip Morris] would at least be interested in listening to some offers to see what they are."
Among those international brewers that are rumoured to be interested in acquiring Miller are Belgium-based Interbrew, South African Breweries and Britain's Scottish & Newcastle. To date, Altria has said that Miller is not up for sale. Miller brought in a new management team last year, led by former Kraft executive John C. Bowlin. The new CEO has promised to revise Miller's marketing approach and come up with more effective advertising. The new management team's lack of beer industry expertise may slow up their efforts to turn the company around, observers warn.
The company has also decided to grow via the acquisition route, gobbling up some high profile US regional brands and their production facilities. As well as adding Hamms, Mickey's Malt Liquor, aide 800 and Henry Weinhard to its stable of brands, the company also has a marketing agreement with Australia's Fosters brand.