Philip Morris is the largest cigarette company in the United States, the second largest brewing company and the largest American food processor. Its brewing business comes from the Miller Brewing Company, and the food processing business comes from its Kraft General Foods subsidiary. In addition, Philip Morris controls what is arguably the world's most valuable brand name: Marlboro. This research examines the current financial and marketing state of the company, and considers the company's efforts to acquire RJR Nabisco.
During 1993, tobacco, food and brewing contributed 42 percent, 50 percent and 7 percent to revenue, respectively, while contributing 56 percent, 38 percent and four percent to profit, also respectively. The remaining revenue and profit came from the company's financial and real estate activities. International operations, which are becoming increasingly important to the company, accounted for approximately 41 percent of sales and 37 percent of operating profits during that year.
The 1993 performance of the tobacco segment is in stark contrast to the 1992 performance of the same segment when it contributed 43 percent of the company's revenue (a similar level), but 69 percent of the company's operating profit. This decrease in profitability can be traced to the company's decision to decrease the price of its flagship cigarette brand, Marlboro, which resulted in steady revenues by attracting additional customers, but which decreased the margin on the product.
The move to decrease the price of a premiere brand such as Marlboro was undertaken as the company seeks to maintain its dominant market share of the cigarette segment. The company controls 42 percent of the domestic cigarette market, which accounted for 17 percent of total company sales and 30 percent of operating profits in 1993. Because of its market share and the increased attention that second-hand and first-hand smoke is receiving with regar...