UPDATE: Altria's Move To Change Pricing Seen As A Positive
March 05 2009 - 11:42AM
Dow Jones News
Altria Group Inc. (MO) plans to raise prices on Marlboro and
several other cigarette brands by 71 cents a pack, a move expected
to help the cigarette maker's profits.
The pricing change - described by Citigroup analysts as
"extremely bullish" for the domestic tobacco industry - pushed
Altria shares up 5% early Thursday.
Altria, however, plans to cut prices for Copenhagen and Skoal
the smokeless tobacco brands it acquired through its purchase of
UST Inc. by 62 cents per tin.
Altria had been widely expected to cut some smokeless tobacco
prices as UST's premium brands had faced tough competition from
cheaper competing products before the acquisition. The lower prices
could boost volumes of Altria's smokeless brands and make them more
attractive to consumers.
Altria's move to lower smokeless prices could mean fresh
competition for Reynolds American Inc. (RAI), which sells smokeless
tobacco products like popular discount brand Grizzly through its
Conwood unit. Altria is also discontinuing UST's Rooster smokeless
tobacco brand.
The cigarette price increase is far more important than the
smokeless price cut, Citigroup noted, as cigarettes contribute
about 80% of Altria's profit.
As the tobacco industry's dominant player, Altria has "lifted
prices by more than, and sooner than, expected," the Citi analysts
noted. An Altria spokesman said the list price increases on
cigarettes are primarily intended to cover the costs of a federal
excise tax increase that goes into effect later this year.
The U.S. tobacco industry has been seeing a drop in volumes amid
higher taxes and bans on smoking in public places. Analysts had
widely expected those volume declines to accelerate this year after
a 61 cent per pack federal excise tax increase on cigarettes goes
into effect in April. Higher prices for cigarettes would
potentially help cigarette makers shore up their profits in the
face of those volume declines. Citigroup expects Altria's
competitors Reynolds and Lorillard Inc. (LO) to follow up with
their own price increases on cigarettes. Both companies declined to
comment.
Altria's moves to hike prices on cigarettes should support much
stronger first-quarter profits and a generally stronger profit
growth profile for its cigarette business, noted Stifel Nicolaus
analyst Chris Growe.
-By Anjali Cordeiro, Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com