Russian effect on Big Tobacco seen as marginal (fwd)

[Robert Weissman <rob@essential.org>]

Russian effect on Big Tobacco seen as marginal

NEW YORK, Aug 31 (Reuters) - The continuing economic and political chaos in
Russia
-- while certainly no help -- is not seen by Wall Street as doing much more
to damage to
Big Tobacco's already weakening profit outlook.

Wall Street analysts said Monday that they had already taken the two major
U.S. cigarette makers' Russian exposure into
account when formulating their profit forecasts for the year.

Philip Morris Cos. Inc. (MO - news), the world's largest tobacco company and
maker of the top-selling Marlboro brand,
and its top rival, RJR Nabisco Holdings Corp. (RN - news), parent of R.J.
Reynolds Tobacco Co., already were expected
to turn in their weakest performances in years in 1998. Russia, however, is
only a small part of their problems, although
Reynolds faces more exposure than Morris, they said.

``At this point, it's hard to gauge, partly because it just happened,''
Morgan Stanley Dean Witter analyst David Adelman said.
``But Reynolds is the most exposed. To Philip Morris, it's almost immaterial
because they're so diversified.''

Sanford Bernstein analyst Gary Black said took Russia into account several
weeks ago during the second quarter when he
chopped a dime off his earnings per share expectation for Reynolds and two
cents off his projection for Philip Morris.

On an operating profit basis, Black said Russia only accounts for $200
million of Philip Morris $12 billion annual profit, while
it accounts for $80 million of Reynolds' $2 billion operating income.

The companies have responded to the Russian rouble crisis by raising the
price of their products commensurately, the analysts
said. ``They're managing to keep the dollar effect neutral,'' Black said.

``It's not a currency issue, because it's a dollarized economy. But when you
double prices over the course of a couple of
weeks, you expect to see some effect on consumption,'' Adelman said.

The latest consensus 1998 earnings per share forecast for Philip Morris is
for a profit of $3.17, up a modest 8.9 percent from
1997's 2.91, according to the earnings tracking service First Call Corp.
Wall Street is more accustomed to profit growth in
the mid-teens from Philip Morris.

At Reynolds, the First Call consensus is for earnings to drop to $2.44 per
share from $2.95 per share.

The companies' profits have fallen prey this year to declining foreign
currencies, weakening domestic demand and litigation
settlement payouts to states suing them to recover the costs of treating
sick smokers.