All channel cigarette dollar sales increased 3.4% (up from +2.9% last period and +0.6% last year) during the recent four-week period ending Nov. 28, 2015, driven by very strong +3.8% pricing, and partially offset by -0.4% equal unit declines, according to a report by Wells Fargo Securities LLC.
Wells Fargo’s “Tobacco Talk” survey found stronger tobacco consumers are up-trading to premium brands, which has been having a favorable impact on the category.
“We also expect strong manufacturer pricing in 2016 to continue, which should generate robust profit growth,” said Bonnie Herzog, managing director, beverage, tobacco and convenience research for Wells Fargo.
Wells Fargo examined the cigarette results of Reynolds American Inc., Altria Group and Imperial Tobacco Group.
“Reynolds American Inc. (RAI) cigarette dollar sales (+3.9% year-over-year) outpaced the industry (+3.4% year-over-year) driven by strong pricing (+3.7%) and improved volume trends (+0.2% vs -1.0% volume last year). Newport (37% of RAI cigarette sales) dollar sales grew an impressive 6.1%, trending above its 52-week average (5.1%) and showcasing Reynold’s strong execution five-months post the Lorillard acquisition. Camel (26% of RAI cig sales) dollar sales were up 2.5% on strong +3.4% net pricing and a 90bp decline in volume which was an improvement vs last year (-1.3%). We reiterate our ‘Outperform’ rating on RAI ($46.42),” Herzog said.
Wells Fargo found that Altria Group cigarette dollar sales grew 3.3%, entirely driven by pricing (+3.4%). Marlboro (86% of Altria cigarette sales) dollar sales (+2.4%) reflected strong pricing (+3.7%), partially offset by -1.2% unit declines, which was a marked improvement vs -3.1% last year and -1.8% in the October period. Marlboro lost 45 bps of retail share, bringing its unit share to 46.8%. “We maintain our Outperform rating on MO ($58.23),” said Herzog.
Imperial Tobacco Group (IMT) continued to show weak unit volume growth (-3.6%) as volume at three of its top cig brands (Maverick, Kool and Salem), which represent >55% of IMT cig sales, declined 2% on a blended average, according to Wells Fargo. IMT dollar share declined 40bps year-over-year to 7.5% in the recent period with Winston holding its dollar share relatively flat at 2% on promo activity.