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Cigarettes could soon cost more

Posted Jan 29 2009, 04:30 PM by Kim Peterson
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Is it a good or a bad thing that cigarettes could soon cost more? Ask that question in a crowded room and you'll get passionate answers from all sides.

It looks like a cigarette price hike is on the way, due in no small part to coming "sin tax" hikes as states try to raise more cash. The federal government is getting in on the act, too, proposing to increase cigarette excise taxes by as much as $1 per pack.

As you can imagine, taxes were a hot topic on Altria's (MO) earnings call Thursday. Executives could only say that they can't predict what politicians around the country are going to do, so they're prepared for a wide range of scenarios.

But a closer look at the numbers shows a cigarette price increase may already be in Altria's future. That's because Altria thinks its 2009 profit will grow as much as 9% from the year before. Even with a teetering economy, rising unemployment, a drop in consumer spending -- and an almost certain cigarette tax increase on the way.

You don't get 9% growth in that environment without a price hike.

Altria's numbers show that it expects to increase prices at Philip Morris USA to offset volume declines that result from a tax increase, said one analyst, Adam Spielman of Citi.

Tax discussion aside, Altria had a decent fourth quarter. But two current business issues will not please investors. The first is the share buyback program, which Altria is suspending. The company was only about a quarter of the way through its $4 billion share repurchase plan.

The second problem is high interest rates on loans. Altria acquired smokeless tobacco company UST for $10.4 billion, and was hit with higher interest payments than expected on the loans it took to make that deal.

Altria shares started strong this morning but are now unchanged from Wednesday's $16.83 close.

So is Altria's stock worth a look? The company's near-term future is in the political winds at this point, and though it probably has a small army of lobbyists storming Washington, it can't control what happens to taxes.

But there is much going for the company long-term, particularly the promising acquisition of UST. And with a forward P/E of 9.60, the stock is definitely worth a look. That is, if you can get past any ethical concerns about owning a tobacco company.

A tax increase will inevitably push some customers to discount brands, but Altria seems to be ready for that.

Image credit: Tomasz Sienicki, Creative Commons Attribution 2.5 license

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More 'sin taxes' ahead as states scramble for money

The sinfully bullish case for Anheuser-Busch

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Comments

 

I have no sympathy for smokers and the cost their cigarettes. As a non smoker I have to subsidize their health insurance. We all get pooled together so I pay more. The same goes for those obeese employees. I suggest they tax cigarettes another $1.00 per pack and put in a fund to offset the healthcare costs all of the taxpayers pay to keep these morons huffin and hackin. Heck, why not $2.00 a pack.

The tax hike won't affect me I just buy them online ones that come from Europe you pay only a quarter of the cost that you would here.

I've got a great idea for where to place a "sin" tax--politicians and hedge-fund managers!!

It really makes me angry that once again states and our government have chosen to raise the price of cigarettes.  I wish they would use some of that money they are making to come up with a product to help those of us who smoke quit.  But wait....what would they do for more revenue then?  They spout how smoking kills so many people each year, and that smokers are the ones who are the sickest and causing the insurance rates to go sky high.  If I forget to get my flu shot I catch the flu once a year so how am I causing insurance to go up? That is pretty much the extent of any illness I have annually.  And my parents and grandparents lived well into their 80's when they died of old age and natural causes. Go figure.

 But they have yet to seriously talk about having insurance companies help defray some of the cost of the treatments that are out there.  Funny how they will pay for treatment of alcoholism, drug abuse, spouse abuse and anger management programs to name a few but they won't help at all for the addiction of smoking.  Sure .. I could spend $100.00 to pay for some pills that make me have severe nightmares, depression and headaches.  Or better yet try the shot that is supposed to suppress the urge to smoke that causes severe heart problems.  Nice options huh?    That's just to start the program.  I have tried to quit many times..but no one wants to be around me while I go through the horrible withdrawal symptoms..and have ended up smoking again.

This sits right up there with States and counties raising property taxes to help fund their stupidity and overspending.  Folks are having enough trouble making ends meet as it is and now they want to push them over the edge by raising taxes on everything.

Maybe it's just time States and the Government stop spending money they don't have...gee what a concept.  They might even be able to save a little and not be bailing everyone and their mother out.

I'm thinking crime rates will elevate.  There are many who are motivated by sin and unmotivated to cooperate with with a bunch of jack-arses who control prices other than the manufacterer or whoever else is trying to make a profit.  I don't smoke but I drink.  If beer is in the sin forcast you'll find me drinking home brew from now on.  There are huge pools of money out there and it isn't from people who are the "little guy".  The gov wants to keep the little guy working, then tax the sheet out of him/her.  what a crock

Note that the suggestion is to raise taxes on smokers, who are clearly a minority. Cigarette taxes are huge now, but those who like to tax "sinners" see a ready trove of dollars. What if vodka or beer were taxed at the rate cigs are? Every Joe Sixpack would be protesting. I say, it's bad enough now...find something else to tax.

At least they are being honest this time and not trying to say they are using the money to offset healthcare costs. At least this time they are being up front by saying they wil tax the crap out of a group of people that most of us have no sypathy for, thats they way the government works. Hopefully those of us that dont smoke dont end up in the crosshairs of the politically correct a-holes that decide which ones should pay for things that either should not be paid for or should have been paid for by everyone not just the smokers.

Quote: It really makes me angry that once again states and our government have chosen to raise the price of cigarettes.  I wish they would use some of that money they are making to come up with a product to help those of us who smoke quit.  But wait....what would they do for more revenue then?  They spout how smoking kills so many people each year, and that smokers are the ones who are the sickest and causing the insurance rates to go sky high.  If I forget to get my flu shot I catch the flu once a year so how am I causing insurance to go up? That is pretty much the extent of any illness I have annually.  And my parents and grandparents lived well into their 80's when they died of old age and natural causes. Go figure.

But they have yet to seriously talk about having insurance companies help defray some of the cost of the treatments that are out there.  Funny how they will pay for treatment of alcoholism, drug abuse, spouse abuse and anger management programs to name a few but they won't help at all for the addiction of smoking.  Sure .. I could spend $100.00 to pay for some pills that make me have severe nightmares, depression and headaches.  Or better yet try the shot that is supposed to suppress the urge to smoke that causes severe heart problems.  Nice options huh?    That's just to start the program.  I have tried to quit many times..but no one wants to be around me while I go through the horrible withdrawal symptoms..and have ended up smoking again.

This sits right up there with States and counties raising property taxes to help fund their stupidity and overspending.  Folks are having enough trouble making ends meet as it is and now they want to push them over the edge by raising taxes on everything.

Maybe it's just time States and the Government stop spending money they don't have...gee what a concept.  They might even be able to save a little and not be bailing everyone and their mother out.

Smoker who doesn't blow smoke your way

/Quote

Sorry, but everything you just said is a personal problem. You chose to light up and puff and now you need to deal with all the ills of trying to quit. And yes, I think the exact same thing about the companies being helped by bailout money. They chose to lend out bad money and they should suffer their own consequences. I'm not a smoker and I never plan to be, so my money shouldn't be going to help people who CHOSE to smoke and now have to deal with all the problems that are associated with it. "If you can't do the time, don't do the crime" sums up basically what I'm saying. Know what your doing the next time you try to experiment with something. I too have no sympathy for smokers, drug addicts, or alcoholics.

All the "whining" and "whimpering" won't solve anything. Get off the couch and register to vote, then get rid of the current greedy politicians and lawmakers.

I live in Washington State where the cigarette tax is $2.02 per pack. The feds are going to raise it another $1 and our state legislature just announced that they are going to raise it another $1 on top of that. Cigarettes are going to cost between $8 - $9 a pack. But it is not going to affect me because several years ago when our wonderful governor raised the cigarette tax I decided that I would be damned if I was going to give the government one more red cent! After smoking for 40 years and two packs a day I quit cold turkey. If I can do it so can you!

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