Cigarette Prices Rising 6 Cents Per Pack

Reynolds, Altria also increasing snus prices

Steve Holtz, Editor in Chief, CSP Daily News

NEW YORK -- Altria Group Inc. and Reynolds American Inc. are each pushing through a six-cent per-pack price increase across all cigarettes sold by the tobacco producers, a move that has not yet been matched by Lorillard Inc., reported The Wall Street Journal.

Richmond, Va.-based Altria's Philip Morris USA, maker of Marlboro and L&M cigarettes, will enact its price increase effective June 18. Winston-Salem, N.C.-based Reynolds American, whose brands include Camel and Pall Mall, made its price hike effective at the end of day Thursday.

The pricing action by the two largest U.S. cigarette producers by revenue is the first round the industry has taken this year.

A spokesperson for Greensboro, N.C.-based Lorillard told Dow Jones that the company would not comment on future pricing plans.

Reynolds American earlier Thursday struck a similar tone, though it later confirmed for the news agency the plans to raise prices, including a 10-cent-per-tin price increase on smokeless tobacco Camel Snus.

PM USA also increased the price on its Marlboro Snus by five cents per tin.

"The increase and timing of this is as we expected based on results of our ... industry trade surveys," New York City-based tobacco analyst Bonnie Herzog of Wells Fargo Securities LLC said in a research note. "Furthermore, we expect 2Q12 industry cigarette volume should be strong given: 1) wholesalers had been building inventory in the last few weeks in anticipation of this price increase; and 2) inventory levels were very low at the start of the 2Q and were likely built up during the quarter."

Tobacco analyst Nik Modi of UBS, New York, generally agreed, and in a research note said, "We believe the timing of the price increase will leave ample time for wholesalers to work down inventory by the end of 2Q12 (as many of them loaded up over the past few weeks in anticipation of an increase)."

He added, "We continue to see pricing as the key driver of tobacco profits and stock performance. We believe Big 3 tobacco is favorably positioned as the group continues to take market share from deep-discount players who are struggling in an environment with a higher cost of business largely due to new FDA regulations."

Added Herzog, "Overall this price increase is positive and indicates the industry still does have some pricing power. Given that consumption will likely continue to decline in the mid-single digit range, pricing is necessary to drive top-line growth."

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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