New York, Dec. 18 (Bloomberg) -- Philip Morris Cos., the world's
largest tobacco company, boosted U.S. cigarette prices to
distributors by about 7 percent, or 14 cents a pack, to pay for
rising legal settlement costs and increase profits.
The price increase on Marlboro, Benson & Hedges and other
Philip Morris brands went into effect today, spokesman Michael
Pfeil said. R.J. Reynolds Tobacco Holdings Inc., the maker of
Winston and Camel cigarettes, said it will raise wholesale prices
by the same amount.
Today's increase includes 8 cents a pack to cover higher costs
from U.S. cigarette makers' $206 billion settlement with 46 states
in 1998, analysts said. The rest will go to boost profit and
marketing, they said. The increase will translate into retail prices
that are 17 cents to 18 cents higher, analysts said.
"That's a pretty healthy price increase," said analyst Marc Cohen
at Goldman, Sachs & Co., who said it was about 5 cents a pack
more than he had built into his earnings estimates of $4.10 a
share for Philip Morris in 2001.
R.J. Reynolds said it will increase wholesale prices by 14 cents a
pack starting with cigarettes being shipped tomorrow, spokesman
Seth Moskowitz said. The increase is only 7.5 cents for Monarch,
Best Value and all of its Forsyth Tobacco Products brands, he
said. The company also makes Winston, Camel and Salem
Shares of New York-based Philip Morris rose $1.25 to $41.31.
The company, the top performer in the Dow Industrials Average
this year, also makes Kraft cheese, Miller beer and Maxwell
House coffee. The shares have risen 80 percent this year.
R.J. Reynolds, the No. 2 U.S. cigarette marker, rose 25 cents
to $45.75. American depositary shares of British American
Tobacco Plc, owner of Brown & Williamson, rose 6 cents to
$14.94. Lorillard parent Loews Corp. rose 69 cents to $95.
Philip Morris has led industrywide price increases totaling about
$1.15 a pack in the past three years. The company has boosted
cigarette prices three times this year, with the other two increases
coming in the form of a 6 cents-a-pack increase in July and a
13-cent boost in January.
The higher prices have helped Philip Morris push U.S. cigarette
profit up for four straight quarters, even as consumers balked at
paying more and bought fewer cigarettes. Consumption fell about
8 percent in 1999 after the industry's largest increase -- 45 cents
a pack -- was levied to pay for the 1998 settlement. Checkout
counter sales are now estimated by analysts to have cooled off to
about a 1 percent to 2 percent decline per year.
"Demand is not very sensitive to moderated price increases,"
Philip Morris increased wholesale cigarette prices by 18 cents a
pack in August 1999. Increases in 1998 were as follows: 2.5 cents
in January, 5 cents each in April and May, 6 cents in August, and
45 cents in November.
by Will Edwards