Executive Business Briefing

Here is a look at more of Thursday's top business stories:

Earnings jump at Philip Morris

NEW YORK, July 18 (UPI) -- Philip Morris Cos. Inc., parent of the world's largest tobacco company, said its second quarter net income was lifted by higher cigarette prices.

The company said its second quarter net income rose 14 percent to $2.61 billion, or $1.21 a share, from $2.28 billion, or $1.03 a share during the same period last year.

On a diluted basis, Philip Morris, whose products include Marlboro cigarettes, said its second quarter net income jumped to $1.24 a share, from $1.11 a share during the same period a year ago.

Sales rose 1.5 percent to $21.1 billion, the company said.

Analysts on Wall Street had expected the company to post a diluted net income of $1.23 a share, according to Thomson Financial/First Call.

The operations of Miller Brewing Co., which was taken over by South African Breweries on July 9, creating the world's second largest brewer, SABMiller PLC, were included in Philip Morris' results for the second quarter. Philip Morris now holds a stake of almost 40 percent in SABMiller.

Louis C. Camilleri, president and chief executive officer, said: "Our domestic tobacco business delivered solid income gains in a highly competitive marketplace. Our international tobacco business delivered strong volume and income gains, with excellent share growth across most of its key markets.

"Kraft Foods also delivered a very strong quarter, with pro forma diluted earnings per share up 17.0 percent behind a solid income gain and increased volume. During the quarter, we announced the merger of Miller Brewing Company with South African Breweries PLC, which was completed on July 9, 2002," Camilleri said.

Underlying operating companies income for Philip Morris Inc., the company's domestic tobacco business, increased 5.1 percent to $1.5 billion, driven by higher pricing and lower promotional spending, partially offset by lower volume.

Shipment volume decreased 13.8 percent to 46.2 billion units, due to trade inventory depletions following the April 2002 price increase and the timing of promotions in the second quarter of 2002 vs. the second quarter of 2001.

Philip Morris USA increased its retail share of the premium segment by 0.6 point to 62.1 percent, although the industry's premium segment itself declined 1.0 point to 72.6 percent at retail.

This decline was partly due to lower levels of promotion behind Philip Morros USA's focus premium brands in the second quarter.

In the second half of 2002, Philip Morris USA plans to increase its investment behind these brands to further improve their share performance.

Underlying operating companies income for Philip Morris International, the company's international tobacco business, rose 5.9 percent to $1.4 billion, driven by volume gains and higher pricing, partially offset by the impact of unfavorable currency.

Excluding unfavorable currency of $58 million in the quarter, the unit's operating companies income would have grown 10.2 percent.

Shipment volume increased 3.1 percent to 185.5 billion units, reflecting strong volume growth in Asia, Eastern Europe and Turkey.

Philip Morris International gained share in most of its major markets, with particularly strong gains in Belgium, the Czech Republic, France, Greece, Indonesia, Japan, Malaysia, Mexico, Russia, Spain, Taiwan, Thailand and Turkey.

In Western Europe, shipment volume declined 2.0 percent, due primarily to the timing of shipments to France, Italy and Portugal.

However, the company's total market share in Western Europe for the quarter was up 0.5 points to 39.3 percent, fueled by gains in Belgium, France, Greece and Spain, with Marlboro achieving share gains in most markets.

In Central Europe, the Middle East and Africa, volume increased 4.1 percent. In Eastern Europe, volume rose 9.3 percent and in Asia, volume increased 6.7 percent.

Underlying operating companies income for Miller Brewing Co. increased 0.6 percent to $169 million in the second quarter, due primarily to higher pricing, partially offset by a significant increase in marketing expenses behind the launch of several new flavored malt beverages, and lower domestic volume.

Domestic shipment volume declined 2.5 percent to 10.9 million barrels, reflecting industry softness due to unfavorable weather conditions and lower shipments for both Miller's below-premium and core brands, partially offset by the continued success of Skyy Blue, and the launch of Stolichnaya Citrona and Sauza Diablo flavored malt beverages.

Looking ahead, Camilleri said, "We project that our full-year 2002 underlying diluted earnings per share growth will be at the lower end of our previously disclosed range of 9 percent to 11 percent.

"This reflects plans in both our domestic and international tobacco businesses to invest approximately $350 million in our premium brands and retail presence to enhance future volume and market share. This investment will be partially funded by currency favorability that we expect to realize in the second half of this year," Camilleri added.

Earnings rise at Wachovia

CHARLOTTE, N.C., July 18 (UPI) -- Wachovia Corp., the nation's fourth largest bank holding company, said its second quarter net income was boosted as low interest rates lifted mortgage loans and refinancings.

The bank said its net income rose to $862 million, or 63 cents a share, from $633 million, or 64 cents a share during the same period last year.

Excluding merger and restructuring charges, Wachovia said its net income jumped to $957 million, or 69 cents a share in the latest quarter.

Analysts on Wall Street had expected Wachovia to post a net income of 69 cents share, according to Thomson Financial/First Call.

Ken Thompson, president and chief executive officer, said, "This was another solid quarter for our company, which reflects the hard work and dedication of our people in serving customers in a difficult economic environment. We're particularly proud of the 13th consecutive quarter of improved customer satisfaction ratings, even as we successfully completed the conversions of brokerage, personal trust, mutual fund and other systems that directly touch our customers.

"While many employees have been busy learning new policies, products and procedures, we've continued to see outstanding growth in core deposits and, at the same time, record sales of investment products. And we've made excellent progress in building capital and controlling expenses. This is a real tribute to our people and, we believe, to our momentum for the future," Thompson said.

The lender said its total revenue increased 3 percent from the first quarter to $4.6 billion, reflecting an improved margin in the continuing low interest rate environment, lower write-downs in principal investing and higher net securities gains used to offset the impact of credit actions.

Earnings fall 41.8 percent at Southwest Airlines

DALLAS, July 18 (UPI) -- Southwest Airlines Co. said its second quarter net income fell 41.8 percent to $102.3 million, or 13 cents a share, from $175.6 million, or 22 cents a share during the same period last year.

The airline said it also expects to be profitable in the third quarter, though less than in the second quarter.

Analysts on Wall Street had expected Southwest to report a net income of 11 cents a share, according to Thomson Financial/First Call.

During second quarter, the company said it recognized $36 million in additional passenger revenue from a reduction in estimated refunds and exchanges included in "Air traffic liability."

Excluding the effect of the reduction in air traffic liability, net income for second quarter was $84.5 million, or 10 cents a diluted share, which represents a 51.9 percent decline from second quarter of last year.

Total operating revenue fell 5.2 percent to $1.47 billion from $1.55 billion a year ago.

Revenue passenger miles (RPMs) increased 1.8 percent in second quarter 2002, compared to a 4.4 percent increase in available seat miles (ASMs), resulting in a load factor of 69.9 percent vs. the second quarter 2001 load factor of 71.7 percent.

James F. Parker, vice chairman and chief executive officer, said, "As predicted, our second quarter 2002 earnings fell well below second quarter 2001 net income of $175.6 million. The significant reduction in quarter over quarter earnings is primarily attributable to weak full fare customer demand for air transportation.

"Although our load factors are at satisfactory levels, second quarter 2002 revenue yields were significantly below year-ago levels because we are carrying a significantly greater proportion of customers traveling on lower- yielding discounted fares. As we continue to carry a higher percentage of these customers, and assuming normal seasonal travel patterns, third quarter unit revenue is expected to be below second quarter's unit revenue," he said.

"We are pleased with our better than expected cost performance in second quarter. Since the end of first quarter, jet fuel prices have moderated, resulting in a 0.1 percent decline in our average fuel costs per gallon, to 67.42 cents for second quarter 2002. We are adequately hedged in third quarter 2002 at 80 percent with caps in the $24 per barrel range and 80 percent in fourth quarter 2002 with caps in the $22 range. We are also currently hedged at 65 to 70 percent in 2003 with caps around $23 per barrel," Parker said.

"Excluding fuel, unit costs declined modestly due to our various cost control measures implemented immediately following Sept. 11. At this juncture, we do not foresee any significant changes in our cost structure for third quarter 2002," he added.

Looking ahead, Parker said, "Based on our current business outlook, we expect to be profitable in third quarter 2002, although below second quarter 2002 levels. While our profitability since Sept. 11 has been modest relative to pre-Sept. 11 expectations, we are very grateful that we have been able to produce profits sufficient to provide job security, wage and benefit increases, and profit sharing for our 35,000 employees throughout this terribly difficult period."

Earnings decline 20 percent at Eli Lilly

INDIANAPOLIS, July 18 (UPI) -- Drugmaker Eli Lilly and Co. said its second quarter net income fell 20 percent to $658.5 million, or 61 cents a share, from $827.7 million, or 76 cents a share during the same period last year.

The results were in line with Wall Street's expectations, according to Thomson Financial/First Call.

Lilly blamed the decline on declining sales of its flagship antidepressant Prozac, which has been facing generic competition since August.

Worldwide sales declined 9 percent to $2.775 billion, due primarily to lower Prozac sales as a result of the August 2001 introduction of generic competition in the U.S. market and, to a lesser extent, continued declines in sales of anti-infectives and Axid.

The company said this decrease was partially offset by the continued strong performance of key growth products.

Worldwide sales volume declined 8 percent and selling prices reduced sales by 1 percent, while exchange rates had no effect on sales. Excluding Prozac, sales volume increased 10 percent.

The company said Zyprexa sales rose 23 percent to $906.8 million. U.S. sales of Zyprexa increased 21 percent to $632.9 million, while sales outside the United States increased 28 percent to $273.9 million.

Diabetes care revenue, composed primarily of Humulin, Humalog, and Actos, increased 9 percent to $614.7 million. Diabetes care revenue increased 9 percent in the U.S. to $401.6 million, and increased 10 percent in international markets to $213.1 million.

Worldwide sales of animal health products rose 4 percent to $162.1 million. Excluding the effect of exchange rates, sales grew by 5 percent.

Looking ahead to the third quarter of 2002, excluding any unusual items, the company expects earnings per share to be in the range of 67 cents to 69 cents a share.

The company narrowed its full year guidance for earnings-per-share to $2.60 to $2.62 from $2.60 to $2.65, excluding unusual items.

Baxter's earnings fall 21 percent

DEERFIELD, Ill., July 18 (UPI) -- Health products maker Baxter International Inc., citing acquisition-related and impairment charges, said its second quarter net income fell 21 percent.

The company said its net income fell to $200 million, or 32 cents a share, from $253 million, or 42 cents a share during the same period last year.

Excluding the special charges, Baxter earned 48 cents a share, which was in line with analysts expectations, according to Thomson Financial/First Call.

Sales rose to $2.02 billion from $1.87 billion a year ago. Excluding the impact of foreign exchange, sales rose 9 percent in the second quarter.

Sales within the United States grew 7 percent to $1 billion, while sales outside the United States grew 10 percent, or 12 percent excluding foreign exchange, to $1.02 billion.

BioScience sales rose 7 percent to $732 million, Medication Delivery sales advanced 15 percent to $817 million and Renal sales declined 1 percent to $473 million.

Contributing to sales growth in the quarter were Baxter's anesthesia and drug delivery products, as well as continued strong growth in sales of Recombinate, Baxter's recombinant Factor VIII therapy used in the treatment of hemophilia. Recombinate sales rose more than 25 percent in the quarter.

Harry M. Jansen Kraemer, chairman and chief executive officer, said, "Our business fundamentals remain strong, and, excluding special charges, our second quarter earnings were in line with our expectations. "With continued strong sales of Medication Delivery products and Recombinate hemophilia therapy, as well as improvements in BioScience production yields and cycle times, we expect our sales growth to accelerate in the second half of this year," he added.

Looking ahead, excluding the charges, Baxter expects to meet its full year 2002 commitments of sales growth in the low teens, earnings per share growth in the mid-teens and operational cash flow of $500 million.