Philip Morris Raises Cigarette Prices

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Published January 13, 2015

Philip Morris USA (search) has raised prices on certain cigarette brands by 10 cents per pack, effectively matching an increase last month on its top brands such as Marlboro, tobacco industry analysts said.

Philip Morris USA, the top U.S. cigarette company, was not immediately available to comment.

In December, Philip Morris, a unit of Altria Group Inc. (MO), effectively raised prices for the first time in more than two and a half years by reducing wholesale discounts on large brands such as Marlboro and Virginia Slims.

That move was seen by analysts as a sign that larger cigarette makers had regained some pricing power. The major U.S. cigarette companies lost some of that power when smokers turned to deep discount and private label cigarettes.

R.J. Reynolds Tobacco Co. (search) , the No. 2 player in the market and the main unit of Reynolds American Inc. (RAI), followed Philip Morris with some price increases of its own in December.

The latest increases from Philip Morris are on brands such as Alpine, Benson & Hedges (search), and Chesterfield, Prudential Equity analyst Rob Campagnino said in a note issued late on Thursday.

Campagnino rates Altria "overweight."

Campagnino also said Lorillard, the No. 3 U.S. cigarette maker, had decreased promotional spending behind Newport, its main brand, after the moves by its two big competitors.

Lorillard trades as a tracking stock, Carolina Group (CG), and is part of conglomerate Loews Corp. (LTR).

Lorillard was not immediately available to comment on the report.

Campagnino rates Carolina "neutral weight."

"Although the non-focus brands represent roughly only 4 percent of Philip Morris USA's total portfolio, to us, this announcement is another signal that Philip Morris has confidence in the improving U.S. fundamentals," Smith Barney analyst Bonnie Herzog wrote in a note to clients late on Thursday. "We believe Philip Morris USA is taking another step toward resuming pricing power."

Herzog has a "buy" rating on Altria.

Also late on Thursday, Campagnino upgraded Reynolds American to "neutral weight" from "underweight" due to factors such as expectations for "significant positive legal catalysts for the cigarette manufacturers." He also downgraded smokeless tobacco company UST Inc. (UST) to "underweight" due to valuation.

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