Giant Tobacco Manufactures Increase Prices by 7 Cents

January 14th, 2016 00:00

The Big Three tobacco producers are revealing self-confidence again in the overall flexibility of smokers’ extra spending by increasing standard cigarette prices by about 7 cents per package for a third consecutive round. R.J. Reynolds Tobacco Company affirmed that it has increased the price on seven cigarette brands, such as - Camel, Doral, Kent, Newport, Old Gold, Pall Mall and True.

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The list price is what bulk suppliers pay producers for their goods. The raises are generally passed on to customers. “The tougher tobacco user continues to efficiently effect the category as consumers switch to premium brands,” Wells Fargo Securities expert Bonnie Herzog stated, citing Camel, Newport and Philip Morris USA’s Marlboro brands as illustrations. “Considering the fact that underlying cigarette industry usage will likely go back toward its long-term trend of decreasing, pricing continues to be a critical factor of profit and earnings increase.”

Imperial Tobacco Company (ITC) announced its price boost for Kool, Maverick, Salem and Winston. Among them are the four cigarette brands parent company Imperial Tobacco acquired in its $7.1 billion offer with Reynolds American that was concluded June 12. Philip Morris USA is increasing the price on all its cigarette brands, starting Sunday. The producers also increased their prices by 7 cents per package in May and November 2014. “We anticipate this ongoing pricing power to support drive momentum in tobacco stocks,” Herzog added. Altria Group and Reynolds explained in their respective 3Q revenue reports that their earnings went up partially due to larger cigarette prices and consumers owning more extra income from lower energy and gas costs.

Citing Nielsen industry data, Herzog explained ITG sales in October dropped by 5.1 % year over year and decreased by 1.9 % from September. Winston sales were off 0.7 %. Herzog explained ITC is predicted to offer higher pricing discounts within a significant marketing drive to reestablish Winston as a key U.S. brand, along with possibly Kool. ITC brands shown up of the Reynolds-Lorillard megadeal with a 10 % U.S. market share. “According to the dialogue with industry retailer contacts, the majority of them consider that ITC has a constant struggle given the brands it obtained and given Reynolds new everyday low price retailer contract.”  “We expect ITC could generate more rapid earnings as it moves a balance between balancing Winston’s share and milking its other brands.”

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