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Philip Morris USA Inc.
Domestic Tobacco
Philip Morris USA Inc. (PM USA) volume began to stabilize and its retail share increased sequentially during each quarter of 2003, with improved results in the fourth quarter. For the full year 2003, PM USA’s shipment volume declined 2.3% to 187.2 billion units. Operating companies income declined 22.4% to $3.9 billion, due to higher spending to support PM USA’s programs to narrow price gaps, as well as lower volume and $284 million in pre-tax charges for the tobacco growers settlement, relocation of PM USA’s headquarters to Richmond, VA, and other exit costs. PM USA successfully implemented its strategy to increase retail share by introducing an off-invoice promotional program and calling on additional retail outlets. It also expanded its successful direct-mail initiative and proven brand-equity and relationship-building programs. PM USA’s total retail share improved significantly in 2003, reaching 49.1% in the fourth quarter of 2003, a full percentage point higher than the year-earlier quarter, as measured by the IRI/Capstone Total Retail Panel. Premium mix for Philip Morris USA improved by approximately 1.1 points to 91.3%. The deep-discount segment remained relatively flat over the same time period, at approximately 10%. Both Marlboro and Parliament gained retail share in 2003, while PM USA’s other focus brands, Virginia Slims and Basic, were essentially stable. Marlboro’s retail share increased 1.1 share points in the fourth quarter of 2003 versus the prior-year period, to 38.5%. Parliament also performed well, adding 0.4 points at retail versus the year-earlier period, to achieve a 1.7% retail share in the fourth quarter of 2003. Virginia Slims’ retail share was down slightly to 2.4%, while Basic, PM USA’s major discount brand, also decreased slightly to a 4.2% retail share. As the industry leader, PM USA is supporting a number of important legislative initiatives. PM USA strongly supports the passage of meaningful and effective regulation by the FDA of tobacco products. Additionally, PM USA supports a number of other federal and state initiatives that are designed to provide governments with additional tools to ensure that cigarette manufacturers comply with their Master Settlement Agreement (MSA) payment obligations or the escrow deposit requirements of related state laws, that the availability of counterfeit cigarettes is significantly reduced, and that the illegal sale of cigarettes and non-payment of taxes are dealt with effectively. Significant progress has been made on many of these issues. PM USA also continues to support programs to communicate information on a broad range of issues, including the serious
health effects of smoking, quitting smoking and Youth Smoking Prevention. PM USA expects moderate growth in operating companies income and retail share in 2004. |  |
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Michael E. Szymanczyk
Chairman and
Chief Executive Officer |
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