Cigarette Prices on the Rise?

Philip Morris Cos. Inc., the biggest cigarette maker in the United States and manufacturer of category leader Marlboro, may raise cigarette prices for the second time this year to cover an increase in federal excise taxes coming in January, analysts said.

The company could increase prices by 8 cents a pack in November, and rivals likely would follow, Robert Campagnino, a tobacco analyst with Prudential Securities Inc., told Bloomberg News. Consumers probably wouldn't see the increase until 2002 because of promotions Philip Morris has planned for the end of the year, he said.

Excise taxes for cigarette wholesalers and retailers will rise by 5 cents a pack in January, and manufacturers will probably raise prices to protect retailers' profits and keep orders up, Campagnino said. In April, Philip Morris led the industry in a 14-cent-per-pack increase to cover costs from the 1998 settlement of tobacco lawsuits between the industry and 46 states.

"Absent a price increase, we believe that we could see a repeat of January 2000, where less-sophisticated retailers failed to plan for the [federal excise tax] increase and face financial difficulties," Campagnino said in a report.

Philip Morris spokesman Tom Ryan declined to comment, the report said.

Four years ago, Congress approved legislation that raised the cigarette tax incrementally to 39 cents a pack, from 24 cents, by 2002.

Bonnie Herzog, a tobacco analyst with Credit Suisse First Boston, said last week that Philip Morris will "initiate a modest price increase" toward the end of this month, though she didn't say how much, the report said.
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