NEW YORK -- Citing industry contacts, Citigroup tobacco analyst Bonnie Herzog said in a news flash late yesterday that Lorillard is following other cigarette manufactures by increasing the prices on its flagship Newport brand.
Newport's wholesale list price will increase by five cents per pack effective September 25, she said, adding, This pricing action is in line with its main competitors, [Philip Morris USA] and Reynolds [American], who have both essentially taken prices up by around five cents per pack on most of their brands in the past two weeks.[image-nocss]
Herzog said, Overall, we find these pricing actions positive since it indicates to us that the industry still has some pricing power. Furthermore, it suggests that even in the face of a potential federal excise tax [FET] increase (which we believe is likely) pricing power exists.
Concerning the federal tax, she said, Over 92% of our trade contacts believe that there is at least a 50% chance that there will be a federal excise tax increase on cigarettes effective early 2008 based on a proprietary survey we just conducted. We also believe there will be an FET increase (80% probability).
Greensboro, N.C.-based Lorillard is the nation's third largest tobacco company. It is an indirect subsidiary of the Loews Corp., which in January 2002, issued the Carolina Group tracking stock for the purpose of recognizing Lorillard's financial performance and owns 61% of its shares.
Newport, Lorillard's top brand, is the No. 1 menthol cigarette brand in the United States; it is the second-largest cigarette brand in the nation. It brings in about 91% of Lorillard's sales by volume. Other brands include Kent, Max, Maverick, Old Gold, Satin and True. Maverick is the company's discount brand.
Click here to read CSP Daily News coverage of PM USA's recent price increase.
On September 10, said Herzog, Reynolds American sent a memo to all of its customers informing its buyers that the company would be taking a manufacturer's list price increase of $1.50 per carton on Camel and Winston, and 50 cents per carton on Kool, Pall Mall, Salem, and Doral. Additionally, Santa Fe, asubsidiary of Reynolds American, increased its list price on American Spirit branded cigarettes. The resulting per pack price increases equate to a 15-cent increase for those brands increased by $1.50 per carton and a 5-cent increase for those brands increased by 50 cents per carton; however, the list price on Camel had been below several of the other brands, and therefore, Reynolds increased Camel by relatively more to get Camel's price point to align more equally with brands such as Kool. The price increase was effective on shipments scheduled for delivery on Monday, September 17.
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