Philip Morris USA Announces List Price Increase for Brands of Cigarettes
Price increases are expected across the tobacco industry in the coming weeks.
A recent increase in list prices by one of the giants of the tobacco industry has paved the way for other companies to follow suit. These price increases should be good news for the industry.
A new report from Wells fargo reported that Philip Morris USA has increased its list price by seven cents per pack (a 2-3% increase), or 70 cents per carton, across all of its brands, including Marlboro.
This increase will be effective for shipments as of May 15, 2016. From a time point of view, this price increase roughly matches the price increase for cigarettes from Philip Morris USA last year, which is entered into force on May 17, 2015. This price increase was anticipated by Wells fargo, based on comments from its “Tabacco Talk” polls.
“Overall, we expect tobacco inventories to respond favorably to this list price increase as it suggests that the industry’s continued strong pricing power. We reiterate our overweight rating on the tobacco sector and our outperformance ratings on Altria and Reynolds American Inc, ”said Bonnie Herzog, general manager of beverage, tobacco and convenience store research, Wells Fargo Securities LLC .
The price increase is positive for the industry
According to Wells Fargo, this price increase is positive, and it indicates that the industry has retained a strong pricing power, which follows several quarters of very strong realization of net prices for manufacturers (6-7%).
“As the underlying cigarette industry consumption is likely to return to its long-term downtrend, prices remain a key driver of revenue and profit growth. In fact, manufacturers achieve nearly three times more leverage on earnings from a price point than a volume point, ”Herzog said.
Wells fargo said the company expects Reynolds American and International Tobacco Group to increase their prices as well in the coming days, in line with the increase from Philip Morris USA.