--Altria leads industry with first price increase this year, a sign tobacco continues to command strong pricing power
--All three major tobacco firms announced two rounds of price increases last year
--Reynolds American and Lorillard haven't raised prices this year, though analysts anticipate they will
By John Kell
Altria Group Inc. (MO) is pushing through a six-cent per-pack price increase across all the tobacco producer's brands, a move that has yet to be matched by rivals Reynolds American Inc. (RAI) and Lorillard Inc. (LO).
The maker of Marlboro and L&M cigarettes will enact the price increase effective June 18. The move, a sign tobacco continues to command strong pricing power, is the first round of pricing action a producer has taken this year.
All three players enacted two rounds of price increases last year, in July and December. The increases have come at a time when state excise taxes have been fairly muted and as some analysts note domestic cigarette retail prices are far below global "income-adjusted" average levels.
Analysts in recent weeks had been clamoring for the industry's players to increase prices, a move needed to help lift profitability as industry cigarette volumes continue to decline. Many expect Reynolds American and Lorillard will follow Altria's lead over the next few days as the trio often move on pricing within a small window.
Representatives from Lorillard and Reynolds American told Dow Jones Newswires they haven't matched Altria's move, and wouldn't comment on future pricing plans.
Wells Fargo analyst Bonnie Herzog had already incorporated Altria's expected price increase into the bank's earnings estimates. Ms. Herzog anticipates the industry's second-quarter cigarette volume will be strong as wholesalers have been building up their inventories the last few weeks in anticipation of price increases and due to the fact that inventory levels were low at the beginning of the quarter.
If the price hike were to be matched evenly by Reynolds American and Lorillard, Citi analyst Vivien Azer said Reynolds would benefit more. Ms. Azer said a six-cent increase would represent a 1.6% lift for Reynolds American's Camel brand and 1.8% for Pall Mall, compared with 1.4% for Lorillard's Newport.
For Altria's Marlboro, which represents 87% of the company's total volume, the increase works out to be a 1.5% hike, Ms. Azer said. That falls below a 2.4% increase last July but modestly ahead of December's increase.
Altria's shares were up 0.3% to $33.38, while Reynolds American rose 0.8% to $42.07 and Lorillard gained 0.6% to $124. All three stocks are in positive territory for the year.
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