A decline in demand is not keeping R.J. Reynolds Tobacco Co. from raising the list price on its cigarette brands by 6 cents or 8 cents a pack for wholesale customers.
The price increase, announced yesterday, will take effect Monday.
David Howard, a spokesman for Reynolds, said that the company doesn’t comment on its pricing strategy, but the decision comes five days after Philip Morris USA announced a price increase of 6 cents a pack, which went into effect yesterday.
Reynolds is raising list prices less than a week after reporting that its cigarette-shipment volume fell 11 percent in the third quarter to 20.6 billion cigarettes. Reynolds said that the industry decline was 12.6 percent.
Howard said that the list price is increasing 6 cents a pack for its growth brands – Camel and Pall Mall – and also for Doral, GPC, Kool, Misty, Salem and Winston. All but GPC are considered as support brands.
The list price is being raised 8 cents a pack for its other brands, which include Capri, Eclipse, Lucky Strike, More and Vantage.
Charles Norton, the portfolio manager of the USA Mutuals Vice Fund, said that Reynolds is likely to be able to sustain the third price increase related to its cigarettes since September 2007.
In March, Reynolds raised the list price in the range of 41 cents to 78 cents a pack for wholesale customers, including 41 cents to 44 cents for most of its growth and support brands.
The increase was in response to Congress passing the 62-cent increase in the federal excise tax to pay for expansion of the State Children’s Health Insurance Program. That tax increase went into effect April 1.
In September 2007, Reynolds raised its cigarette prices by a range of 5 cents to 15 cents a pack, including 15 cents for Camel.
“Strong pricing power is one of the underpinnings of our positive view of tobacco, which is a much more important driver of earnings than volume,“ Norton said.
Reynolds said in its third-quarter report that it had a slight market-share drop in cigarettes to 28.2 percent. The market share for Camel, the lead Reynolds cigarette brand, dipped slightly to 7.7 percent. Pall Mall’s market share was at 5 percent, up 2.3 percentage points from a year ago.
A temporary price discount in the spring on Pall Mall attracted smokers wanting to spend less on cigarettes in the recession. Even after the discount ended in May and prices were raised to counter the excise-tax increases, Pall Mall maintained a higher market share.
The company began another discount promotion for Pall Mall on Oct. 5.
Reynolds also raised its full-year earnings projections last week to a range of $4.60 to $4.70 a share – from $4.40 to $4.60 – as a sign of confidence in its strategies.
By Richard Craver
October 29, 2009