Tobacco category shifts continue to indicate a shift back towards combustible cigarettes.

Cigarette sales are heading back towards historical declines, and the recent +0.7% growth over the past four weeks was driven by solid pricing. Cigarette pricing over the past four week period, ending Sept. 9, 2016, pricing was up a solid +3.7%, while volume was down -2.9%.

“As we expected, cig volumes are starting to decelerate, trending toward historical declines (down 3-4%), particularly as the industry laps unusually strong (essentially flat) volume trends over the past year. We continue to estimate total cigarette industry volumes will decline around -2.0% in FY16E and decelerate to -3.0% in Fiscal Year 2017,” said Bonnie Herzog, managing director, beverage, tobacco & convenience store research, Wells Fargo Securities LLC.

According to Wells Fargo, the following are the results for the individual companies within the industry over the past four weeks:

• Reynolds American Inc. Cigarette dollar sales were up +1.0%, driven by continued strength in Newport (+2.9%). Reynolds American’s cigarette dollar sales strongly outpaced the industry’s +0.7% growth, driven by strong +4.0% pricing, which more than offset -3.2% volume declines.
• Altria Group: Cigarette dollar sales increased 0.5%, which was driven by solid Marlboro performance. Altria’s cigarette dollar sales continue to be driven primarily by pricing (+3.1%), and partially offset by softening volumes. Marlboro dollar sales increased +0.5% on +2.9% pricing and -2.4% volume. Marlboro market share held steady on a sequential basis at 46.7%.
• Imperial Brands PLC: Dollar sales improved, but they are still under pressure, as dollar sales were down -1.1%, driven by substantial -5.3% volume declines, which were partially offset by +4.4% pricing.

Smokeless Tobacco $ Sales Trends Continue to Reflect Healthy Category Shifts –

According to Wells Fargo Securities, smokeless tobacco dollar sales grew +3.9% in the recent four week period, a marked decline from a high of 8.0% in December. This decline marks what Wells Fargo’s Bonnie Herzog has indicated may reflect “continued shifts into combustible cigarettes by a generally stronger adult tobacco consumer.”

Electronic cigarette dollar sales rose an impressive +21.8% over the recent four week period. These gains were led by solid volume and pricing by VUSE and distribution gains by MarkTen XL most likely driven by couponing, which resulted in -6.1% pricing. Wells Fargo also indicated that the industry’s push to innovate ahead of deeming regulations contributed to the growth.