Posted on 12/10/2004 1:50:10 PM PST by Tumbleweed_Connection
Altria Group Inc.'s Philip Morris USA has initiated a long-awaited increase in cigarette prices, providing what some analysts consider the first sign of life in the U.S. cigarette market since 2002.
Philip Morris on Friday confirmed earlier analyst reports that it notified wholesalers Thursday of a reduction in the current "off-invoice promotional allowance," by $1 to $5.50 a carton, for its Marlboro, Virginia Slims, Parliament and Basic cigarette brands. An off-invoice promotional allowance is a form of wholesale discount, and analysts said the reduction effectively raises cigarette prices by about $1 a carton, or 10 cents a pack.
The lower promotional allowance is for shipments from Dec. 12 through Jan. 30, said Philip Morris representative Peggy Roberts in an interview.
The largest U.S. cigarette producer has maintained its discounts worth $7.50 a carton on its "shorter" Marlboro Menthol cigarettes on shipments through Jan. 30, she said.
Philip Morris hasn't commented on its reasoning behind the move, she said.
"We continue to analyze the market and determine the proper level of promotional spending," Roberts said. "It's an ongoing process."
She declined to comment on what impact the move may have on the results of parent company Altria, the New York-based company that also owns Kraft Foods.
Citigroup Smith Barney said the first price increase in more than 2.5 years paves the way for improved pricing power industrywide. It comes on the heels of price hikes by two small manufacturers several weeks ago and the recent passage of a $10.1 billion tobacco buyout program, the costs of which give major manufacturers a catalyst for regaining pricing power, analyst Bonnie Herzog said in a research note.
The gap between premium and deep-discount cigarette brands is at its narrowest level in three years, providing Philip Morris more "wiggle room" to increase prices, she wrote.
"This price increase should be a positive catalyst for the stock in the near term," Herzog said. "By finally increasing its prices, Philip Morris has signaled that it has confidence in the improving U.S. fundamentals."
Citigroup continues to believe a breakup of Altria is inevitable, making the stock worth $75 to $80 a share when that occurs, Herzog said, reiterating her buy rating and 12-month price target of $68.
Herzog doesn't own Altria shares, but the company is a client of Citigroup Global Markets, which owns 1 percent or more of its common shares.
Prudential expects the lower promotional discount will continue beyond January "into the foreseeable future," the firm said in a research note. Analyst Robert Campagnino increased his 2004 operating profit forecast for Altria by $185 million to $4.51 billion from $4.32 billion following the news but maintained a per-share earnings estimate of $4.68. He boosted his 2005 per-share earnings forecast by 7 cents to $5.17.
Prudential on Friday maintained earnings forecasts for other big tobacco players, Reynolds American Inc. and Carolina Group, a tracking stock for Loews Corp.'s Lorillard Tobacco Co.
Prudential said it's unclear at this point what their response to Philip Morris' move will be. But Campagnino said he interprets the news "as a lessening of competitive pressures in the domestic tobacco industry," which could benefit valuations for all players.
He boosted his price targets on Carolina Group by $2 to $32 and on Reynolds by $3 to $74.
Campagnino doesn't own shares of the companies, which aren't clients.
Shares of Altria closed at $59.14 Friday, up 29 cents, on the New York Stock Exchange.
I have never smoked but have always wondered if the Premium cigarettes like Marlboro taste better than the no name generics for the same tobacco company...
yes, very much different.
Puff ping!
Did you happen to catch the mention on TV last night (sorry, didn't catch the station) about the Marlboro Marine and the cigarettes being sent to him?
This is business. I own stock here and support the increase. The market as it stands now should not be affected.
Somehow it just doesn't seem right that the Marlboro Marine would hafta pay more.
Gee whiz, TC, you're all heart! Stick it to the smokers again and tell them it's for their own good!
"I have never smoked but have always wondered if the Premium cigarettes like Marlboro taste better than the no name generics for the same tobacco company..."
The thought of a cigarette "tasting" like something enjoyable is repulsive...
Under NO circumstance can I imagine a cigarette "tasting" good, no matter whether it is "premium" or not. Is the point of smoking the cigarette to satisfy the desire to partake of the TASTE, or is it the NICOTINE that actually (and involuntarily) keeps the smoker coming back again and again?
The whole concept befuddles me...:-(
And he said that he wishes they would LOWER the price, not increase it. Well, I hope he 'does' get them for free now. This will just make it harder for him to buy them.
Well, get used to it. Lots of people on the Puff List in FR. There are a lot of us that really DO enjoy it!
Nicotine is one of the most addictive chemicals in existance.
I quit 3 months ago and am never looking back. Even the smell makes me queasy now.
Yay for me.. :-)
It serves them right if they're still puffing PM smokes. The company sold us all down the river. F them and their customers.
Lots of people on the Puff List in FR
I'm one of 'em but I only smoke cigars
Exactly. I have hated PM for several years now. They talk out of both sides of their mouths.
It would tickle me to no end to see them sink.
Most likely you will puff again, Don't get uppity about 3 mos.
off the weed. I quit for two years, again for almost a year, couple of times for several months.
Smoking is bad for the brain
http://www.newscientist.com/news/news.jsp?id=ns99996765
"The killer habit measurably reduces the IQ of
smokers over the course of their lifetime,
according to a study spanning over 50 years."
She Lion...thank goodness the Internet separates all of you smoking FReepers from all of us non-smoking FReepers or my eyes would tear up so badly, I wouldn't be able to see the screen...hence the reason I do not frequent bars... :-)
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