Pricing remains a critical driver of revenue and remains necessary to drive top-line growth, says Wells Fargo Securities spokesperson.
Altria/Philip Morris USA announced a cigarette list price increase of $0.07 per pack (roughly 2-3% increase), or 70 cents per carton, across all of its core brands and a $0.07/tin increase on Marlboro snus tins, on May 13.
The list price increase goes into effective with shipments on or after May 17, 2015.
As anticipated, Lorillard and Reynolds American Inc. (RAI), including Santa Fe Natural Tobacco Co., followed Altria’s lead by taking cigarette list price increases on May 14 of $0.07/pack, to impact orders billed starting on May 15, Wells Fargo Securities LLC reported.
“From a timing perspective, this list price increase is line with May 2014’s cigarette list price increase and our ‘Tobacco Talk’ survey results, which predicted a mid-May 2015 cigarette list price increase,” said Bonnie Herzog, managing director, beverage, tobacco and convenience store research for Wells Fargo. She called the price increases “positive.”
“We reiterate our ‘Overweight’ rating on the tobacco sector and this announcement supports our thesis of continued strong pricing power for the tobacco industry,” she said. “Given that underlying cigarette industry consumption will likely continue its long-term trend of declining, pricing remains a critical driver of revenue and remains necessary to drive top-line growth and a point of pricing drives 2.5-times the leverage vs. a point of volume.”
