Tobacco companies such as Altria Group Inc. and Reynolds American Inc. are going to increase the prices of cigarettes by a six-cent per-pack. However, a cigarette maker Lorillard Inc. has not followed this move, the Wall Street Journal informed.
Philip Morris USA, the property of Altria and maker of Marlboro and L&M cigarettes, will bring its cigarette price increase into action on June 18.
Reynolds American, based in Winston-Salem, N.C. and which produces such cigarette brands as Camel and Pall Mall, raised its cigarette prices on June 14.
It is the first time this year when the two biggest U.S. cigarette manufacturers enact cigarette price increase effective.
Dow Jones was reported by a spokesperson for Lorillard that the tobacco company would not annotate future plans on cigarette pricing.
The cigarette maker Reynolds American on the contrary said to the news agency on June 14 about the plans on cigarette price increases. As well the tobacco company informed that the price for smokeless tobacco Camel Snus will be increased by 10-cent-per-tin.
The price of Marlboro Snus, manufactured by Altria’s Philip Morris USA, also was raised by five cents per tin.
Tobacco analyst Bonnie Herzog of Wells Fargo Securities LLC said in a research note that the rise and timing of this is founded on results of industry trade surveys.
Moreover, they believe 2Q12 industry cigarette volume should be strong given:
1) wholesalers had been building inventory in the last few weeks in anticipation of this rise in price;
2) inventory levels were extremely low at the beginning of the 2Q and were probably created during the quarter.
In whole, tobacco analyst Nik Modi of UBS, New York, accepted and said that they suppose the timing of the rise in price will give sufficient time for wholesalers to work down inventory by the end of 2Q12.
Nik Modi added that they consider that pricing is a key to tobacco benefits and stock performance. They think that the three largest tobacco companies are favorably positioned as the group goes on to take market share from deep-discount players who are fighting in an environment with a higher cost of business largely thanks to new FDA regulations.
Bonnie Herzog added that generally this rise in price is good and shows that the tobacco industry still does have some pricing power. Given that consumption will likely continue to decrease in the mid-single digit range, pricing is necessary to drive top-line growth.