The increase could come out to about 8 cents a pack at checkout counters, said
Credit Suisse First Boston analyst Bonnie Herzog. It's Philip Morris's eighth
increase in about two and a half years, totaling more than $1 a pack.
Cigarette makers have increased prices to pay for legal costs and, lately, to fund
promotions to keep smokers from switching to discount brands, analysts said.
"This is largely a margin-related increase," said Martin Feldman, tobacco
analyst at Salomon Smith Barney Inc. "It also begins to take into account the
almost 10 cent-per-pack rise in settlement costs that the industry will
have to pay in 2001."
Officials at No. 2 R.J. Reynolds Tobacco Holdings Inc. and No. 3 Brown &
Williamson, a unit of British American Tobacco Plc, weren't immediately
available for comment.
Distributors helped push Philip Morris's second-quarter U.S. cigarette
sales up 3.6 percent, buying ahead of an anticipated price increase, the company said
earlier this month. Analysts had expected Philip Morris to lead an increase of
as much as 12 cents a pack by the end of August.
Price of Success
"I was looking for a little bit higher, but I'm not changing my forecasts,"
First Boston's Herzog said. "They're going to promote a lot of this away."
Philip Morris is currently holding a 45 cent-per-pack promotion to temporarily
lower the prices of its cigarettes at U.S. checkout counters, Herzog said.
U.S. cigarette makers boosted prices by 45 cents a pack in November 1998 after
agreeing to a $206 billion settlement agreement with 46 states to help them
recoup costs treating sick smokers. Other increases in 1998 included 2.5 cents
in January, 5 cents each in April and May, and 6 cents in August.
Shares of New York-based Philip Morris rose 1/4 to 25 11/16 in New York Stock
Exchange trading.
