More price hikes due for cigarettes
Posted
Mar 05 2009, 02:00 PM
by
Kim Peterson
Rating:
Will cigarette smokers have any money left for anything else? Altria Group (MO) says it will soon raise prices on Marlboro and other brands by 71 cents a pack. In less than a month, a federal excise tax will kick in to the tune of 61 cents per pack.
The Altria price hike -- the third in as many months -- is a reaction to the new federal tax. Altria thinks cigarette sales could drop a bit, so it's increasing prices to make up for the loss. Now, analysts at Credit Suisse expect Altria's revenue to grow this year instead of decline.
The average price for cigarettes will soon be above $5 a pack, according to Credit Suisse. That probably won't have much of an impact on smokers, the analysts said, since sales volume didn't really change in states where prices have already surpassed that mark.
I wonder, then, what is the price level that will finally turn off smokers?
So far, rival Reynolds American (RAI) isn't saying whether it will raise prices on its Camel brand of cigarettes. Reynolds didn't match the 9-cents-a-pack increase that Altria's Phillip Morris unit rolled out last month. The market seems to be rewarding price hikes: Altria's shares rose more than 3% Thursday on the pricing news, while Reynolds shares fell by nearly 3%.
That new tax increase, by the way, stems from a law signed by President Barack Obama in February that expands health coverage for 3.5 million uninsured children. The cigarette tax hike will pay for that expanded coverage.
A price war seems to be brewing in the smokeless tobacco category. Altria is cutting prices on cans of Skoal and Copenhagen by about 62 cents, according to Reuters. The company is trying to generate growth in that category after losing some momentum to cheaper competitors.
Image credit: AnthonyA7, public domain release
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