(4 of 5)
Since Rube and Mac's personal touch was so vital in Philip Morris' start, there were understandable qualms when the team of Chalkley and Lyon succeeded them. But affable Salesman Lyon soon rivaled his predecessors in cajoling dealers and salesmen ("My name is Lyon but I'm no wild animal. . . ."), and President Chalkley spurred the whole company to fresh endeavor by encouraging initiative rather than following able Mac McKitterick's policy of being a one-man arbiter of everything. He extended the bonus system to the whole company. As the only major executive in the country with leaf-buying, manufacturing and selling experience he was a logical choice as McKitterick's successor. And as the cool, careful, level-headed type he was well fitted to guide Philip Morris from a small unit with big ideas to actual bigness.
Tobacco inventories are bought three years in advance so they can age properly and thus they require a sizable investment. Philip Morris at first got such working capital by borrowing, not by floating securities. But inevitably, as its inventories swelled to a $20,000,000 figure, bank loans became too cumbersome, particularly on top of the $700,000 expense of building a slick new factory, opened last month. So last week with its 519,151 shares of common selling at $95 (on earnings of $10.91 last year, current dividends so far for this year of $5.25)—with its English Blend sales this year setting new records each month and expected to approximate 11,000,000,000 by year's end—Philip Morris finally offered for sale an issue of 77,873 shares of 5% preferred stock convertible into common share for share. Only 748 reached the general public. The rest was gobbled by eager Philip Morris common stockholders at $100 a share.
In Wall Street this easy sale, in a period when stock flotation had never been so difficult, produced two reactions. Financial World dubbed Philip Morris "a coming blue chip." Cynical tobacco stock specialists, however, were still unconvinced. Noting that more than two-thirds of Philip Morris sales are urban, they wondered whether, with its sophisticated slant, it would ever have truly national appeal. And they shook gloomy heads over the action of New York City (where Philip Morris sells one-fifth of its smokes) in imposing a 1¢ a package cigaret tax two months ago. Other cigaret companies could pass this on to the consumer. Philip Morris to maintain its fixed price policy must either absorb the tax or reduce its famed dealer profit margin. So far the dealer has either absorbed it or charged 16¢. Philip Morris may therefore be forced to use a stunt it tried before—giving dealers one pack free with every carton they buy, thus compensating the reduced profit margin.