Altria, Reynolds Enacting First Price Increases This Year
06/14/2012| 06:34pm US/Eastern
--Altria leads industry with first price increase this year, a sign tobacco continues to command strong pricing power
--Reynolds American follows suit by matching Altria's price increase
--All three major tobacco firms announced two rounds of price increases last year
(Updates throughout with pricing action by Reynolds American and closing stock prices.)
By John Kell
Altria Group Inc. (>> Altria Group, Inc.) and Reynolds American Inc. (RAI) are each pushing through a six-cent per-pack price increase across all cigarettes sold by the tobacco producers, a move that hasn't yet been matched by Lorillard Inc. (>> Lorillard Inc.).
Altria, maker of Marlboro and L&M cigarettes, will enact the price increase effective June 18. Reynolds American, whose brands include Camel and Pall Mall, will make 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.
All three players enacted two rounds of price increases last year, in July and December. The increases have come at a time when state excise taxes have been fairly muted and as some analysts note domestic cigarette retail prices are far below global "income-adjusted" average levels.
Analysts in recent weeks had been clamoring for the industry's players to increase prices, a move needed to help lift profitability as industry cigarette volumes continue to decline. Many expect Lorillard will follow its larger rivals over the next few days as the trio often move on pricing within a small window.
A Lorillard spokesman told Dow Jones Newswires the company wouldn't comment on future pricing plans. Reynolds American earlier Thursday struck a similar tone, though it later confirmed plans to raise prices, including a 10-cent per-tin price increase on smokeless tobacco Camel Snus.
Wells Fargo analyst Bonnie Herzog had already incorporated Altria's expected price increase into the bank's earnings estimates. Ms. Herzog anticipates the industry's second-quarter cigarette volume will be strong as wholesalers have been building up their inventories the last few weeks in anticipation of price increases and due to the fact that inventory levels were low at the beginning of the quarter.
If the price increase were to be matched evenly by Reynolds American and Lorillard, Citi analyst Vivien Azer said Reynolds would benefit more. Ms. Azer said a six-cent increase would represent a 1.6% lift for Reynolds American's Camel brand and 1.8% for Pall Mall, compared with 1.4% for Lorillard's Newport.
For Altria's Marlboro, which represents 87% of the company's total volume, the increase works out to be a 1.5% hike, Ms. Azer said. That falls below a 2.4% increase last July but modestly ahead of December's increase.
Altria's shares closed up 1.2% to $33.68, while Reynolds American grew 1.8% to $42.49 and Lorillard gained 1.4% to $125.06. All three stocks are in positive territory for the year.
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