Altria is pushing through price increase of six cents per pack across all cigarette brands
–Move later mirrored by Reynolds American, Lorillard
–Altria’s price hike enacted on shipments effective Dec. 3, rivals’ increase takes effect on Friday
Altria Group Inc. MO +0.48% is pushing through a price increase of six cents per pack across all of the company’s cigarette brands, the second round of price rises the tobacco producer has taken on those products this year.
The maker of Marlboro cigarette and L&M cigarette confirmed it would enact the price increase on shipments effective Dec. 3. The move was later matched by rivals Reynolds American Inc. RAI -0.44%and Lorillard Inc. LO -0.0083%, which have also now raised prices twice in 2012.
Reynolds American confirmed it would raise the list price on all cigarette brands by six cents per pack and increase the price of Camel Snus by five cents per tin. Lorillard, meanwhile, raised the list price by six cents per pack for all cigarette brands with the exception of Old Gold, which the company left unchanged.
The list-price hikes enacted by Reynolds American and Lorillard each go into effect on Friday.
Altria, the largest U.S. tobacco producer, typically leads on pricing decisions. In June, it raised the list price on cigarettes by six cents per pack, an increase that was matched by Reynolds American. Lorillard has been pushing through generally higher prices of late.
At first glance, the price increases could ease concerns investors and analysts have raised in recent months about the strength of profits generated by domestic tobacco companies. All three firms have heightened price promotions in a battle to win or defend market share as consumers remain under pressure due to a weak economy.
Though all three players enacted two rounds of list price increases last year, over that same period, the higher prices haven’t necessarily hurt consumers. Altria has actually kept a lid on the per-pack price for Marlboro with pricing promotions that have helped the company gain market share.
Stifel Nicolaus analyst Christopher Growe said he was relieved by Altria’s pricing decision given the heightened promotions in recent months. Though Reynolds American and Lorillard ultimately raised their list prices, as many observers expected, Mr. Growe expects those rivals will keep spending on promotions to remain competitive.
“Raising prices on time and in line with history and our model should put investors’ minds at ease,” Mr. Growe wrote in an analyst note. “We believe the threat of no or low pricing in December at least somewhat weighed on the valuations of U.S. tobacco companies.”
UBS analyst Nik Modi in a research note said pricing is a key driver to the sector’s profits and stock performance. Mr. Modi said ultimately, the larger tobacco firms should be in a position to take market share from deep-discount peers who are struggling with higher costs related to new Food and Drug Administration regulation.
Shares of Altria rose 0.5% to close at $33.57 Thursday. Reynolds American’s stock dropped 0.4% to $43.45 while Lorillard ended the session down a penny to $120.41. Among the three stocks, Altria has had the best performance so far in 2012.