PM USA, Lorillard Apply 6-Cent Price Increases

RICHMOND, Va. and GREENSBORO, N.C. -- The cost of cigarettes is on the rise again.

Richmond-based tobacco company Altria Group Inc. is instituting a price hike of 6 cents per pack on its core brands, including its Philip Morris USA (PM USA) brands. The move equates to an approximate 2-percent increase.

PM USA's Parliament brand, however, will see an 11-cent-per-pack price increase, according to Bonnie Herzog, managing director of beverage, tobacco and consumer research at Wells Fargo Securities LLC.

In addition, PM USA is cutting the off-invoice promotional allowance on its Marlboro and L&M brands by 6 cents per pack. The new allowances on these brands will be 2 cents per pack for Marlboro and 15 cents per pack for L&M, effective May 11. Price protection on Marlboro will take place through May 25.

Lorillard Inc., the Greensboro-based maker of the Newport brand, is also taking a 6-cent-per-pack increase of its own. According to Herzog, this action is effective for orders billed starting May 9. Lorillard will not change the off-invoice discount values of any of its brands.

"Overall, the cigarette promo decreases/list price increases that Altria and now Lorillard have taken are positive and indicate continued pricing power, in our view," Herzog said. "Given that consumption will likely continue to decline in the mid single-digit range, pricing is necessary to drive top-line growth."

The results of Wells Fargo Securities' latest Tobacco Talk survey pointed to a list price increase by early June, as CSNews Online previously reported.

"We believe wholesalers have been building inventory in advance of these price actions and this could offset volume pressures due to e-cigs/e-vapor products," Herzog added.

Reynolds American Inc. is expected to follow suit with a price increase of its own in the next few days. Herzog said the increase should be in line with PM USA and Lorillard.