Other makers follow Philip Morris cigarette price rise
07/31/00
NEW YORK, July 31 (Reuters) - R.J. Reynolds and Liggett Group Inc. raised U.S. cigarette prices to distributors by 6 cents per pack on all of their brands, the companies confirmed on Monday, echoing an earlier move by Philip Morris Cos. Inc.
Other tobacco companies have also followed suit, according to analysts, who said the price increase was a little lower than they had anticipated.
Winston-Salem, N.C.-based R.J. Reynolds Tobacco Holdings Inc., the No. 2 U.S. cigarette maker, is following the Philip Morris price increase on all of its brands, effective Aug 1, a company spokeswoman said.
Liggett, which is owned by Vector Group, also followed Philip Morris, which on Friday told distributors that its 6-cent per pack price increase would go into effect today.
Other U.S. cigarette makers have followed New York-based Philip Morris's lead, but not all companies have raised prices on all of their brands, according to Sanford C. Bernstein's William Pecoriello.
Brown & Williamson Tobacco Corp., a unit of British American Tobacco Plc, increased its premium brands, Pecoriello said, but did not boost prices on its GPC or Viceroy brands.
According to Pecoriello, Lorillard raised prices on all of its brands. Brown & Williamson and Loews Corp., which operates Lorillard Tobacco Co., were not immediately available.
Prices at checkout counters likely will go up 6 to 8 cents a pack due to the increase at the wholesale level, according to analysts.
The increase of $3 per 1,000 cigarettes will be charged to Philip Morris' direct accounts, company spokesman Thomas Ryan said on Sunday. That breaks down to an increase of 60 cents per carton, or 6 cents per pack.
Cigarette companies had last raised prices by 13 cents per pack in January, and before that by 18 cents in August 1999.
Analysts had said earlier this month that wholesalers and retailers were increasing their inventory levels on expectations of a possible price increase.
``I think that (Philip Morris) looked at the inventories that the distributors were holding and felt that it had gone high enough, and one way to control it is to actually announce the price hike,'' Salomon Smith Barney tobacco analyst Martin Feldman said on Sunday.
Ryan said the company began informing its direct accounts about the price increase on Friday afternoon.
There has been speculation a price increase was on the way to boost profits and help pay for costly settlements of smoker lawsuits.
Cigarette makers have been hit with a pack of lawsuits claiming compensation for the treatment of sick smokers and damages, culminating in the record $145 billion in punitive damages award by a Florida jury earlier this month in the so-called Engle class action case.
``I had anticipated a price increase around this time although the increase was less than I had anticipated,'' Feldman said. ``By year-end, I expect Philip Morris to raise prices by 6 to 7 dollars per thousand cigarettes in total,'' including this increase.
Pecoriello had predicted an increase of $6 per 1,000 cigarettes -- or 12 cents per pack -- sometime between the end of the punitive damage phase in the Engle trial and the Sept. 4 U.S. Labour Day holiday.
He now expects that Philip Morris may lead another price increase of 6 cents per pack in October.
Shares of many cigarette makers closed slightly higher on Friday, ahead of the price increase.
Philip Morris shares fell 1/8 to 25-9/16 on Monday morning, R.J. Reynolds was off 3/16 at 27-15/16.