Tobacco: Back to High Levels

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If 1964 looked like a sad year for any industry, it was the badly burned U.S.

tobacco business. Sales plunged immediately after the U.S. Surgeon General's report last January linked cigarette smoking to cancer and heart disease.

But the smoker's habit is stronger than his fear. Cigarette sales started to rebound within three months, by last week had returned to the high levels of a year ago and were still on the rise (see chart).

Now the latest earnings reports are as golden as well-cured burley. American Tobacco, P. Lorillard and Philip Morris broke third-quarter records, and Liggett & Myers is running 27% ahead of last year. The only down note came from the industry leader, R. J. Reynolds (maker of Camel, Winston, Salem), whose profits fell from $35 million to $31 million.

Capricious Tastes. Tobaccomen have not taken the cancer scare as lightly as their customers have. They are branching into different tobacco markets and diversifying into new products. Last week Lorillard hired Consultant Walter M. Aikman, 37, to head a new acquisitions department. Liggett & Myers held a special stockholders' meeting to change bylaws in order to allow diversification, and American Tobacco said it was "seriously studying a number of companies." At the same time, the industry is expanding into the tobacco business in foreign countries, where growth is faster and doctors are quieter. Lorillard is rolling its Kents and Newports in Hong Kong and Luxembourg, Liggett & Myers its L. & M.s in Mexico and Switzerland. Philip Morris has just opened Europe's most modern cigarette factory in Neuchátel, Switzerland.

Back home the cigarette makers continue to introduce new brands to cater to the capricious tastes of 70 million U.S. smokers, with big emphasis on filters. Liggett & Myers is testing a charcoal filter menthol brand called Devon, and Philip Morris is marketing a charcoal filter called Galaxy in Texas. Filter cigarettes now hold about 70% of the U.S. market, but the charcoal filters, which account for some 7% of sales, have had uneven success.

Pall Mall First. According to Analyst John C. Maxwell Jr., who keeps the most reliable count of this secretive market, American Tobacco's king-size Pall Mall is still the fastest seller, closely followed by R. J. Reynolds' Winston. Unfiltered Camel and Lucky Strike, which vied for first place until the late 1950s, are steadily losing favor. In a comeback attempt, American is test-marketing Lucky Strikes with a tobacco-flavored filter, has sent out Luckies' veteran, quick-tongued radio auctioneer, "Speed" ("Sold American!") Riggs, to promote them in stores throughout the South.