Back to Eco. 33 Reading ListTobacco firms raise cigarette prices
September 2, 1997 7:00 PM EDT
NEW YORK (Reuter) - The two largest U.S. cigarette makers Tuesday raised wholesale cigarette prices for the second time this year, to reflect the ``increased cost of doing business.'' Philip Morris Cos. Inc. and RJR Nabisco Holdings Corp. said they raised wholesale prices by $3.50 per 1,000 cigarettes on orders shipped to customers Tuesday. Smaller tobacco companies are expected to follow their lead, industry analysts said. At the wholesale level, the price hike will mean a 7 percent increase on premium brands and 10 percent increase on discount brands, analysts said. Philip Morris declined to comment on the reason for the price hike, but Maura Ellis, a RJR Nabisco spokeswoman said, ''It is a reflection of our increased cost of doing business.''
Tuesday's price increase is just one of several price hikes expected over the next year, as the industry faces massive legal costs and initial payments to settle lawsuits in Florida and Mississippi, analysts said. ''The earliness of the it (the price increase) and the magnitude of it indicate the tobacco companies are being aggressive in recovering costs,'' said Roy Burry, an analyst with Oppenheimer & Co. If the proposed $368.5 billion national litigation settlement is finalized, cigarette prices could rise another 40 to 50 cents per pack over the next year, analysts said. To cover the cost of the national settlement, tobacco companies are expected to both raise cigarette prices and borrow money, analysts said.
In the past, tobacco companies typically raised prices once a year, in the spring. Now, tobacco firms will likely raise prices more frequently, instead of hitting smokers with a single large increase. ``It's in anticipation of moving consumers to higher price points instead of sending out a giant shock wave,'' said Marc Cohen, an analyst with Goldman Sachs.
Shares of tobacco companies rose amid the $1.6 billion price hike, analysts said. The American Stock Exchange's tobacco index rose 7.50 points, or 2.43 percent, to 315.63. Philip Morris stock rose 62.5 cents to $45.31, while RJR Nabisco added 62.5 cents to $35.44, both in composite trading on the New York Stock Exchange.
Source: Pointcast