Cigarette Companies Fall in Line With Price Increases
PM USA, Lorillard, RJR, Liggett add six cents per pack
RICHMOND, Va. -- Altria's Philip Morris USA on May 7 announced to the trade a decrease in off-invoice promotional allowances of six cents per pack on Marlboro and L&M cigarettes, reducing the effective off-invoice promotional allowance to two cents per pack on Marlboro and 15 cent per pack on L&M, said Nik Modi, tobacco analyst at RBC Capital Markets, Chicago, in a research note Wednesday night.
Richnond, Va.-based PM USA is also taking a list price increase of $1.10 per carton on Parliament and 60 cents on the remainder of its portfolio, added Modi.
The changes are effective on shipments on or after May 11, 2014.
"This price increase came roughly one month earlier than the price increase last year (which was on June 5th, 2013)," he said. "We expect [Lorillard and Reynolds American] to follow with their respective price increases by week's end. We see [the] announcement as a positive for our bullish thesis on the tobacco pricing environment. As has been the case historically, we expect the Big Three tobacco players to continue their trend of taking price increases on cigarettes twice a year and maintaining healthy net price realization of 3% to 4%."
They didn't wait that long. Greensboro, N.C.-based Lorillard [on May 8] announced to the trade a 60-cents-per-carton (six-cents-per-pack) increase on its entire portfolio, including on Newport and Maverick, Modi wrote in a followup note.
Lorillard's price is effective on orders on or after May 9, 2014.
Also on May 8, Winston-Salem, N.C.-based RJ Reynolds Tobacco announced price increases on its cigarette brands. In line with PM USA's promo reduction and Lorillard's price increase, RJ Reynolds is raising prices across its entire portfolio by 60 cents per carton (six cents per pack).
Reynolds price increase is effective on orders on or after May 8, 2014.
New York City-based Wells Fargo Securities analyst Bonnie Herzog wrote, "Overall,the cigarette promo decreases/list price increases that [PM USA] and [Lorillard] have taken are positive and indicate continued pricing power, in our view. Given that consumption will likely continue to decline in the midsingle-digit range, pricing is necessary to drive top-line growth."
And following the Big Three, Morrisville, N.C.-based Liggett Vector Brands also took a list price increase on Liggett Select, Eve, Grand Prix and Pyramid of 60 cents per carton (six cent per pack), Modi wrote.
Liggett's price is effective on orders on or after May 12, 2014. "We expect the next round of price increases to come late fall 2014," he concluded.
Meanwhile, on April 30, Altria's U.S. Smokeless Tobacco announced that it is taking list price increases on straight stock SKUs across its moist smokeless tobacco (MST), snus and dry snuff portfolio, Modi said.
Effective May 11, 2014, Copenhagen, Cope, Skoal, Husky, Red Seal will see list price increases per roll of 30 cents and six cents per can, and WB Cut will see list price increase of 36 cents per carton and six cents per pouch.