Tobacco Companies Lift Cigarette Prices
NEW YORK (Reuters) - The nation's leading tobacco companies said on Friday that they will raise the wholesale price of cigarettes by 13 cents per pack, effective Monday.
New York-based Philip Morris, the world's largest tobacco company and maker of the top-selling Marlboro brand, and Winston-Salem, N.C.-based R.J. Reynolds Tobacco Holdings Inc. (NYSE:RJR - news), maker of Camel cigarettes, said the increase would span all of their brands. They declined to comment further.
RJR is the nation's second largest cigarette maker.
Industry analysts told Reuters that Lorillard Tobacco Co., a unit of Loews Corp. (NYSE:LTR - news) and maker of Newport -- the nation's no. 2 premium brand, plans to the match the increase. Lorillard couldn't be reached for comment.
The nearly 7 percent increase, the second in six months, raises the average price to just under $3 per pack and will help pay for higher litigation settlement costs while boosting the companies' bottom line, industry analysts said.
``The majority of this price increase is going to offset higher settlement payments in 2001,'' analyst Bonnie Herzog of Credit Suisse First Boston said, referring to the industry's $206 billion Master Settlement Agreement with 46 states in November of 1998.
``And keep in mind there is a good amount going to the bottom line as well as on promotions,'' Herzog said, adding that the increase is a little higher and earlier than expected.
Industry experts had expected cigarette makers would institute a series of small price hikes between a nickel and a dime this year instead of a larger hike approaching the 18 cent-hike imposed Aug. 31.
``The bottom line is that between this increase and the 18 cent per pack increase in September, cigarette companies have to pay for an increase in settlement payments of seven-to-eight cents a pack, an increase in excise taxes to 10 cents per pack (set in place for Jan. 1) and are able to fund and drive an increase in manufacturer profits,'' Marc Cohen, analyst at Goldman Sachs said.
``That gives me even more confidence that cigarette companies are in position to have a strong financial year in 2000,'' Cohen said.
Philip Morris shares ended the day down 3/8 to 24-1/16 on the New York Stock Exchange while RJR shares closed flat at 19-13/16. American Depository Receipts of Brown & Williamson, the No. 3 cigarette seller in the United States, closed up 3/8 to 11-1/4 and Loews stock finished the day up 3/16 to 60-3/8.