Philip Morris, Reynolds boost wholesale cigarette prices by 14 cents a pack

Thursday, April 26th 2001, 12:00 am
By: News On 6

NEW YORK (AP) _ The cost of a pack of smokes is going up again for the second time in just over four months.

Philip Morris and R.J. Reynolds Tobacco, the two biggest U.S. tobacco companies that collectively account for about seven of every 10 cigarettes sold here, disclosed Wednesday they are boosting wholesale cigarette prices by 14 cents a pack.

Smaller tobacco concerns are expected to follow suit.

The hikes could boost the retail price of a pack of Marlboros, Camels and other brands by even more as retailers and other middlemen typically add a few cents in passing along the hike in what smokers must pay at the checkout register.

Tom Ryan, a spokesman for Philip Morris USA in New York, said the nation's biggest tobacco company notified wholesalers Wednesday that it was boosting the price it charges them by $7 per 1,000 cigarettes, effective Thursday.

Philip Morris accounts for half of the cigarettes sold in the United States.

Maura Payne, a spokeswoman for R.J. Reynolds Tobacco Holdings in Winston-Salem, N.C., said later Wednesday that the No. 2 tobacco company was notifying its wholesalers it was raising prices by the same amount.

The hikes amount to 14 cents per pack and match the increase that major tobacco marketers imposed in mid-December.

Ryan said the latest increase is for all Philip Morris brands which include Marlboro, Virginia Slims, Benson & Hedges, Merit, Parliament, Lark and Basic.

Payne said the Reynolds hike applies to all its brands which include Winston, Salem and Camel. She said the hike ``reflects the increasing costs of doing business.''

David Adelman, who follows tobacco companies for Morgan Stanley Dean Witter, estimated smokers will see the cost of a pack of cigarettes rise 16 cents from the current industrywide average of about $2.90, or about 5.5 percent.

Adelman said the increase came quicker than normal in the tobacco industry, but he said Philip Morris may feel a higher price base will give it more room to offer promotional discounts on its cigarettes. Promotions are a tool for expanding market share.

While price increases can cost the industry some sales, they usually generate even higher profits on the cigarettes that are sold.

In first-quarter earnings report, Philip Morris Cos. Inc. said its domestic cigarette profits rose 7.7 percent to $1.2 billion in the January-March period largely due to higher prices. Its profit rose even as its cigarette shipments to wholesalers fell 2.3 percent.

Philip Morris estimated the industry decline was an even steeper 3.7 percent.

As a result, it said its U.S. tobacco division accounted for a record 52.4 percent of cigarette shipments in the United States in the first three months of the year while its share of the retail market grew 0.4 points to 50.9 percent.

Martin Feldman, tobacco analyst for Salomon Smith Barney, said tobacco companies have been raising prices ``regularly and frequently'' since 1998 to help defray the cost of a $246 billion, 25-year settlement with the states over the costs of treating sick smokers.

But he said those settlement payments should peak this year and ``a growing proportion of each price hike will go to the manufacturers rather than their industry opponents.''

``I expect the industry's profit margins to rise very considerably over the course of the next two years,'' he said.