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June 1998 Volume 25 Number 3 |
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Sara Lee to Sell Douwe Egberts Will Close U.S. Tobacco Operations Sara Lee Corporation has announced plans to sell its international cut-tobacco unit to Imperial Tobacco Group PLC, Britain's second-largest cigarette company. Imperial agreed to pay $1.08 billion, including an up-front cash payment of approximately $370 million and annual payments totaling approximately $710 million, which are contingent upon Sara Lee not re-entering the tobacco business. The transaction includes all brands, operations, and related assets of Douwe Egberts, except for the small U.S. business, based in Stamford, Conn., which will discontinue its operations "no later than July 1." Douwe Egberts, with origins dating back to 1753, was acquired by Sara Lee in 1978. The Netherlands-based company is a leading international manufacturer and distributor of handrolling and pipe tobacco with well-known brands including Drum, Van Nelle, and Amphora. Its products are currently exported to about 100 countries and the company's handrolling tobacco brands account for an estimated 27 percent of the world market share. Nearly 97 percent of the unit's tobacco sales are outside the U.S., primarily in Germany and the Benelux countries. In the fiscal year ending June 1997, Douwe Egberts turned a profit of $110 million on sales of $300 million. For Imperial Tobacco, with 3,300 employees worldwide, the acquisition expands the company's operations outside of its shrinking United Kingdom market. The company currently controls about five percent of the global roll-your-own tobacco market. But with access to key international markets, Imperial is now positioned to become the world's leading handrolled tobacco manufacturer and one of the world's largest pipe tobacco businesses. Gareth Davis, chief executive of Imperial, said the acquisition will provide the company with a "strengthened portfolio of powerful, high-quality, handrolling and pipe tobacco brands," as well as access to international distribution channels for the company's other products. Imperial Tobacco manufactures, markets, and distributes cigarettes, cigars, fine-cut tobacco, pipe tobacco, snuff tobacco, and cigarette papers. The company had annual sales of $1.376 billion and an operating income of $645 million in fiscal year 1997.
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Cigar Sales Growth Slows, But for Majors Outlook Remains Positive
General Cigar Holdings, Inc. reported that first quarter net income increased 80 percent to $7.68 million, up from $4.27 million from the comparable period in 1997. The company disclosed sales of $67.7 million compared to $49.8 million in the 1997 first quarter, an increase of 36 percent. A slowing of orders and sales for premium cigars has developed because of higher inventory levels at wholesalers and retailers, General stated. It acknowledges that industry-wide inventory imbalances emerged as wholesalers and retailers overcompensated in their ordering to address earlier shortages, including the purchase and subsequent discounting of second and third tier brands. Consolidated Cigar Holdings, Inc. said its net sales for the first quarter were $63.2 million versus $55.9 million in the comparable period last year, a 13 percent increase. Operating income for the first quarter increased six percent to $16.3 million, up from $15.4 million in the first quarter of 1997. While higher than last year, sales for the first quarter were negatively affected by inventory imbalances among retailers and wholesalers, as well as an excess of unknown brands. Start-up problems in a new facility belonging to the company's Mexican supplier also affected sales during the first quarter. UST reported its first quarter net earnings increased 11 percent from the corresponding period in 1997 to $112 million. The company's premium cigar sales were very weak in the first quarter compared to last year, attributed to the overabundance of premium cigars in the U.S. market. Operating profit for the cigar operation declined $6.5 million in the first quarter and operating profit will be lower for the year as compared to 1997. The company anticipates cigar operating profits in comparison to previous quarters will improve during the year, and quarterly results will be equal or slightly ahead of 1997. 800-JR Cigar, America's leading retailer and distributor of premium cigars, reported record sales and earnings for the first quarter of 1998. For the three months ended March 31, the company reported sales of $62.2 million versus $49.7 million in the comparable period in 1997, an increase of 25 percent. JR Cigar also experienced an increase in gross profits of 39 percent to $12.6 million, up from $9.1 million in 1997's first quarter. Operating profits rose 45 percent to $5.9 million versus $4.1 million in the comparable period of last year. |
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Bits and Pieces
Dominican Cigar Corp.to place humidors in Walgreens Dominican Cigar Corp. of West Palm Beach, Florida has reached a pilot agreement with Walgreen Drug Stores, Inc. to place cigar displays and humidors in three Walgreen locations in Las Vegas. Dominican president and c.e.o. Don Platten said that once the pilot program is complete, the company will target the remaining 5,000 Walgreen locations throughout the U.S. Platten expects 40 more stores to be operational by mid-June. In March, an international cigar club named after Fidel Castro opened in Moscow in the club "Reporter." The idea of establishing the club was suggested by the Independent Association of Russia's newsmakers and timed to coincide with the 30th anniversary of Cuba's Cohiba cigar. The club is expected to "unite all Russian cigar smokers." |
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