As reported yesterday in a CSP Daily News Flash, the company raised prices on brands like Parliament, Virginia Slims, Chesterfield and Merit by 5 cents a package. It also cut certain promotional allowances on Marlboro and Basic cigarettes by 5 cents per pack, PM USA spokesperson David Sylvia told the news agency. But in [image-nocss] other markets, the company increased special promotional allowances on certain types of Marlboro offerings, which could result in lower prices in those markets.
Richmond, Va.-based PM USA, a unit of Altria Group Inc., New York, gives retailers and distributors promotional allowances that tend to be passed on to consumers in the form of higher or lower cigarette prices, said Reuters, although such price changes are not automatic.
The price increases were "relatively modest and in line with our view that only a modest net price increase...is likely for 2009," Goldman Sachs tobacco analyst Judy Hong said in a research note cited by the report. "We continue to hold the view that that [PM USA] will not be overly aggressive on pricing in 2009," she added.
Hong downgraded her view on the tobacco sector to "neutral" from "attractive," saying a likely increase in the federal excise tax in cigarettes could lead to a 7% decline in industry-wide volume in 2009. Rising unemployment could also cause some consumers to trade down to lower-priced cigarettes and also limit any price increases cigarette makers could take on top of the tax increase, Hong said.
While tobacco companies generate healthy cash flow, Hong warned that tight credit markets limit whether tobacco companies can leverage their balance sheets in the near-term, added an Associated Press report. Long-term, however, Hong said it is still possible for all tobacco companies to accelerate buybacks or make acquisitions.
Hong's top picks are PM USA and Lorillard, which makes Newport cigarettes. PM USA offers investors healthy long-term sales growth, and Lorillard is an attractive takeover target with strong profit and sales growth, Hong said.
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