Cigarette price increases bigger and sooner than anticipated, Wells Fargo reports.
Altria/ Philip Morris (PM USA) announced a wholesale price increase larger and earlier than expected for all cigarette brands, according to a report by Wells Fargo Securities.
Wells Fargo noted PM USA took a cigarette list price increase of :
(1) 11 cents per pack—which translates to about a 2-3% increase at retail— or $1.10 per carton on Marlboro, L&M, Chesterfield and B&H Menthol Green,
(2) 16 cents per pack on Parliament & Virginia Slims;
(3) 31 cents per pack on everything else.
“The 11 cents per pack increase on Marlboro is slightly higher than the 10 cents per pack increase Altria took on Marlboro in September 2018, reflecting in our view, Altria/PM USA’s significant pricing power. The increase will be effective with shipments on or after Feb. 24, 2019 and, from a timing perspective, is one month earlier than Altria’s typical practice of raising cig list prices every six months (the last increase was on Sept. 23, 2018,” said Senior Analyst Bonnie Herzog. “Today’s increase was slightly higher (by one cent per pack) and earlier than our industry contacts predicted in our recent ‘Tobacco Talk’ survey.”
Wells Fargo predicted that overall the increase would be positive for the tobacco industry and demonstrates the industry’s strong pricing power “which follows several quarters of solid manufacturer net price realization ( approximately 5%).”
Herzog note the trend is important given ongoing declines in volume of cigarette sales.
“We believe pricing will remain a critical driver of revenue and earnings growth, particularly as manufacturers realize almost three times the leverage on earnings from a point of pricing than a point of volume,” Herzog said.