Evening star., 1942-04-05
Cigarette Earnings
Declared Unlikely
To Recover Soon
u. S. OfficiuIs Frown
On Price Advances,
Fitch Reports
spt cisl Dispatch to The Star.

NEW YORK, April 4.-Prospects
for nearby recovery in the earnings
of the leading cigarette companies
are dwindling. reported Fitch In
vestors' Service today.
1T seems clear that Washington
authorities have no intention of al
lowing price rise in the popular
brands. Under present circum-
stances, this attitude coupled with
tax policy would indicate that Fed
eral officials regard past profit mar
gins as too high
I'm times gone by, the equities
were regarded as relatively depend
able investments media. Material
costs fuctuated from year-to-year
but the three-year-average policy of
evaluating inventories ironed out
most of the risk resident in this item.
Federal excise taxes moved steadily
higher, but rising volume (from
0O,000, ,00o, 900 to 200, 600, 900 900 units
In the last 10 years. always kept
operating efficiency and earnings
comfortably ahead of the tax col:
lector.
Large Firms Lose Caste,
However, one trend which ran
counter to the interests Of the large
firms escaped serious notice during
the past decade. This was the In
creasing ability of small competitors
to secure more than their propor-
tionate share of the overall in
crement to volume.
competitive practices, for the
most part were aimed at displacing
each other, rather than in the de-
velopment of secondary brands and
trade names to contest the minor
market with the small fry" This
policy may have been Influenced If
not motivated by the desire to
avoid antitrust prosecution.
I'm the early 1906 the Big
Three withstood the challenge Of
old Gold but over the most re-
cent term, they have definitely
yielded ground to Philip Morris
and Brown & williamson
'Raleighs' In addition to these
there are an increasing host of
smaller promotions which are ab-
soroing a substantial portion OF
the market.
1T, therefore. seems likely that
considerable difficulty will be en-
countered in regaining erstwhile
dominance. In other words. it does
not necessarily follow that a Is per
cent increase in total unit sales of
all cigarettes this year, or any year
ahead will provide the Big Three"
brands with commensurate volume
improvement.
In view Of these facts and in
f1uences, it appears that Federal
authorities regard coverage of his
torical dividend rates as an unneces-
sary luxury. 1t may be that, in the
years to come, corporation and ex-
else taxes may be reduced, but such
an eventuality is by no means guar
anteed.
Leaf Costs Jump.
Leaf costs are some so per cent
higher than IN recent years. The
1912 crop has not yet even been
planted, but the state of the ma
tional economy does not promise
we'll for significant reduction of the
price level of the recent season.
Further dilution of earning
power may be encountered as a by
product of sustained high level
of raw material costs. Whereas,
heretofore the cigarette houses have
resorted to banks for a considerable
portion of inventory coverage, they
have never before been called upon
to face such high costs with so little
cash on hand. Bearish market
evaluation of equities may render
the addition of permanent financing
(See CIGARETTES, Page C-9D