New Brands, Increased Ad Spending Blamed for Drop

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CHICAGO ( -- Tobacco company Vector Group today attributed fourth-quarter and full-year losses to the launch of a reduced-toxin cigarette brand, spending on research and development, and significant marketing and advertising expenses.

  The parent of cigarette makers Liggett Group and Vector Tobacco reported a fourth-quarter net loss of $1.1 million, a loss of 3 cents per share, compared with net income of $13.7 million, or 47 cents per share, in the year-earlier period. Full-year net income decreased 88% to $20.7 million, or 58 cents per share, from $174.2 million, or $5.99 per share in 2000.

Fourth-quarter revenue increased to $225.1 million from $145.2 million in same quarter in 2000. Full-year revenue increased to $744.2 million from $649.5 million the previous year.

Vector also announced the completion of its acquisition of discount-cigarette maker Medallion for $110 million.

Losses continue
Vector said it expects

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continued losses in the first quarter, explaining it is still working to expand the distribution of reduced-toxin cigarette Omni and launch a nicotine-free cigarette called Quest in the third quarter.

"Launching two new types of cigarettes is a challenging task," Vector Group Chairman-CEO Bennett LeBow said. "While we're pleased with much of the progress we've made with Omni, sales have been slower than we expected. Undoubtedly the concept of a new category of cigarettes is an idea which will take time to explain and convey to consumers."

Vector is currently running ads for Omni through Trone Advertising, High Point, N.C., which will also handle Quest.

The company will spend $40 million to launch Quest later this year, Mr. LeBow said, in support of Vector's strategy to focus on premium products.

Premium brand
"Quest will be positioned, advertised and priced as a premium cigarette, and provide smokers with a new choice," he said.

Liggett, whose discount brand Liggett Select drove the company's increased sales volume last year, also took steps to expand its premium portfolio with the launch of Jade, a menthol cigarette, in September.

  Vector, which last month announced it would combine the sales and marketing operations of its two subsidiaries to form Liggett Vector Brands, hopes the new unit will enhance the distribution and in-store support for all Vector brands. The new entity, effective this month, has 350 staffers. Vector hopes to expand the group to 500 by year-end.

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