PHILIP MORRIS PRICE POLICY 'SUCCESSFUL,' BUT AT A PRICE

JAMES TENSER

RICHMOND, Va. -- Philip Morris Cos. declared its 1993 U.S. cigarette-pricing policy shift "successful" in a statement accompanying its first-quarter 1994 results. But it also reported operating income declined 3.6% in the period as a result of lower domestic cigarette pricing.

A table of cigarette shipment data appended to the report for the quarter ended March 31 showed price points in the $1.80 per pack range have helped to successfully shift some smokers back to its premium brands and away from discount brands.

For the first quarter of 1994, the premium brands, which include Marlboro, Benson & Hedges and Merit, among others, shipped 39.33 billion cigarettes, or 79.3% of total shipments, up from 31.60 billion units, or 71.5%, in the same period last year. Shipments of discount brands, by comparison, fell from 12.59 billion to 10.36 billion units.

The company's flagship brand, Marlboro, grew from 22.63 billion units in the year-ago quarter to 29.88 billion units in the latest period. It now accounts for 76% of Philip Morris' domestic premium sales, vs. 71% a year ago.

In total U.S. market share, Philip Morris also gained, from 41.6% in the first quarter of 1993 to 43.1% for the latest quarter.

"What they achieved is a favorable change away from lower-margin discount brands and toward higher-margin premium brands," said Cathy Pascale, analyst and managing director of investment firm Furman Selz, New York.

In a statement at Philip Morris Cos. annual meeting in April, Michael Miles, chairman and chief executive officer, said the 40-cents-per-pack price cut made last spring "is working, and should result in long-term profit growth for domestic tobacco business."

For the quarter, Philip Morris reported operating revenues for domestic tobacco of $2.5 billion, down 1.8% vs. the year-ago quarter. Operating income was down 24.5% at $769 million.