Philip Morris Executives Address Morgan Stanley Dean Witter Global Consumer Conference

Business Wire, Nov 8, 2000

That leads me to our second strategy -- leveraging our extraordinary insight into consumer trends to create business-building initiatives. In the food business, this means meeting demand for convenience and meals solutions with products that can achieve the scale and profitability we need to compete in the marketplace.

In tobacco, it means responding to the global demand for American-blend and low-tar-and-nicotine cigarettes. But it also includes capitalizing on our technological expertise to respond to a range of societal concerns about tobacco. Mike Szymanczyk will discuss this point later.

A third key strategy is to drive down costs and improve margins. In 1999, Kraft cut nearly $600 million of its costs worldwide. In domestic tobacco, our operations are a model of efficient manufacturing. As you know, this year we closed our Louisville (Ky.) facility and consolidated U.S. production in two plants.

Internationally, we are adding plants and capacity in emerging markets such as Russia and Malaysia. This helps our cost structure, which both strengthens the bottom line and enhances the competitiveness of our brands.

Our fourth strategy is to maximize the competitive advantage offered by our unmatched infrastructure. This includes capitalizing on the scale and sophistication of our sales forces to build profitable relationships with our trade partners. And it means using our purchasing power -- and the Internet -- to build mutually beneficial long-term relationships with our suppliers.

Now let me tell you how these strategies are translating to our bottom line.

My remarks will refer only to underlying results for the first nine months of this year.

- Operating revenues were up 3.6 percent to more than $61 billion.

- Operating income rose 5.8 percent to $12.3 billion, while net

earnings were up 6 percent to $6.5 billion.

- Diluted earnings per share increased a solid 12.3 percent, to

$2.84. But if you exclude the unfavorable pre-tax currency impact

of $276 million -- primarily due to the weakness of the Euro --

our earnings per share would have been even stronger, up 15

percent.

- Similarly, on a constant-currency basis, our revenue growth would

have been up an additional 3 points, to 6.6 percent.

As we said in our third-quarter earnings release, we project that earnings per share for the full year 2000 will be up 12.4 percent, to $3.71.

Let me tell you how our businesses are contributing to these excellent results.

At Kraft Foods North America, we have accelerated top-line growth driven by our Power Three categories -- ready-to-drink beverages, frozen pizza and meal combinations. All of these respond to consumer demand for convenience.

Take lunch combinations, for example. We created this category more than 10 years ago with Lunchables, and have kept the brand contemporary and fun for kids with line extensions and by creating new eating occasions and new sizes. In 1999, this brand generated $510 million in revenues. This year, we have added two new exciting products -- Lunchables Mega Pack and Lunchables Fun Snacks.