As per media reports, Altria Group Inc. (MO) plans to hike the price of some of its cigarettes and smokeless tobacco products.
The tobacco maker has decided to slash its off-invoice promotional allowance by 7 cents per pack on its Marlboro and L&M brands. In addition, Altria’s subsidiary, PM USA has raised the list prices by 7 cents per pack and Marlboro Snus Tins by 6 cents. The price hikes, effective from Dec 1, comes after the company raised the prices of its cigarette products across all the brands in June.
Major tobacco players are raising prices as part of their strategy to combat tough industrial conditions. Governments across the world are imposing higher taxes, thus forcing companies to increase prices to maintain their margins.
Altria’s uptick of cigarette prices closely follows Lorillard Inc. (LO). Lorillard announced in Nov 2013 that it will increase prices by 6 cents to 7 cents per pack effective from the first week of December. R.J Reynolds, a subsidiary of Reynolds American Inc. (RAI) also followed suit promptly and hiked the price of cigarette brands including Camel and Pal Mall by 7 cents.
Anti-tobacco campaigns and restrictions imposed by governments around the world are also posing threat to the tobacco majors. This is resulting in declining shipment volume due to lower tobacco consumption worldwide. We feel that the waning consumption trend will continue in the coming quarters. In this scenario, the price increase by Altria and other tobacco majors is encouraging as it suggests continued pricing power of the tobacco players.
Altria has always been afloat amid declining volumes in the cigarette industry with the help of positive pricing. The company has weathered unfavorable tax environment with price increases. In fiscal 2012, Altria raised the prices of its cigarettes across all brands twice, in July and November. The stable volume and market share of the company’s brands despite repeated price increase in several markets shows the company’s strong business model and strength of its key brands.
Altria currently carries a Zacks Rank #3 (Hold). A better ranked stock in the consumer staples sector is Constellation Brand Inc. (STZ) carrying a Zacks Rank #2 (Buy).
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