As Expected, Philip Morris Takes List Price Hike

RICHMOND, Va. -- The Altria Group Inc.'s Philip Morris USA (PM USA) will effectively take a cigarette list price increase by reducing its off-promotion allowances by 6 cents.

The roughly 2- to 3-percent increase is for all Marlboro and L&M brands, effective June 10. In addition, PM USA is taking a 6-cent-per-pack list price increase for all other brands including Basic and Parliament, according to Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC.

"The 6-cent price movement is as we expected, based on results of our recent Tobacco Talk industry trade surveys," she said. "This may not be perceived as favorably for retailers, as it is generally easier for retailers to take price increases following list price increases vs. promo reductions."

As the cigarette industry continues to face challenges, Herzog said Wells Fargo Securities expects second-quarter industry cigarette volume to be in line with historical trends. Inventory building by wholesalers in advance of this price increase could offset volume pressures due to electronic cigarettes.

In addition, Wells Fargo Securities expects overall cigarette net-price realization to accelerate this year to about 4 percent and has further conviction that the industry’s top line will improve during the second quarter and beyond, driven by solid volume trends, higher prices and easing promotional spending.

"Overall, this is positive and indicates continued pricing power. Given that consumption will likely continue to decline in the mid-single-digit range, pricing is necessary to drive top line," Herzog concluded.

R.J. Reynolds Inc. and Lorillard Inc. are expected to take pricing action in line with PM USA's latest move.