TobaccoReviews

The three leading U.S. cigarette companies may consider increasing cigarette prices in the coming week, though the raise won’t necessarily lift profitability as the industry’s representatives have increased promotions recently. Industry experts forecasted that the industry would launch in December their second cigarette price increase for this year, with the investment bank forecasting Altria to lift its prices by 6% to 7% per package.

Altria leads on pricing action, followed after the announcement by smaller competitors as Reynolds American and Lorillard. All three manufacturers haven’t still responded to the pricing speculation. It seems that, the price raise could lessen concerns investors and industry experts have boosted in recent months about the effectiveness of profits generated by the local tobacco companies. All three cigarette manufacturers have increased price promotions trying to win or defend market share as smokers are very affected by the weak economy.

Cigarette manufacturers have tried to put down all those worries by stating that the industry’s $14 billion profit is quite resilient, as new smoking products like moist snuff and e-cigarettes, as well as cost cutting, can help compensate decreases for regular cigarettes. However pricing power is still essential, as it helps cigarette manufacturers assure cash that the companies return to investors through dividend payouts and stock repurchase. All three players have increased price for two times in 2018, more precisely in July and December, and already in June this year.

With time, the higher prices haven’t necessarily affect consumers. Atria, which has been winning market share this year as the company passes promotions that lower prices for some of its smoking products, has in fact held back the pre-pack price for Marlboro. The net package price for Marlboro in the 2Q of 2018 was about $5.63, a figure that boosted by 15 cents as of the 3Q of 2019. However over the same period, Altria declared per pack increases that should have lifted the price by 20 cents.
Marlboro’s influence on the industry is essential. That best-selling brand controlled over 43% of the retail market share in the 3Q of 2019. “Just because they declare another price increase it doesn’t mean that they receive the whole benefit and doesn’t mean that the advertisement wars that we face in the industry are becoming better,” industry expert said. Cigarette shares had a great performance in 2018 and throughout the first half of this year as dividend yields and cash flows moved investors to the sector

Australians purchasing cigarettes are currently assured to experience warnings that consist of pictures of a cancer victim as the world’s first law demanding cigarette sales in standard packages becomes effective.

Since December 1, all cigarettes in Australia should be sold in the standard packages, with the brand name moved to the bottom part of the package on a drab olive background. The conversion from branded cigarette packages to plain packaging started in October. “They’re so ugly that they are impressive,” Fiona Sharkie, executive manager of anti-smoking campaigner Quit Victoria, spoke about the innovative labels at the press conference. Plain packaging was the last action to eradicate smoking, she said.

According to estimates, the Australian government faces A$31.5 billion ($33 billion) in health costs from smoking each year. It fended off an obstacle from cigarette manufacturers, which failed in a suit to stop the plain packaging law on August 15 when the High Court of Australia declined a promise that the ban of the display of trademarks was equal to an illicit capture of their own property. The size of the illegal cigarette market in Australia is equal to approximately 15% of the legal industry, Deloitte LLP stated in a report on the cigarette industry. “This year’s Deloitte review of the illicit tobacco discovered that almost $1 billion in tobacco excise income was lost to crime bands,” Scott McIntyre, a representative for British American Tobacco (BAT) in Australia, informed today. “We anticipate additional increase in the illicit market right now that all packages will be less complicated to duplicate due to plain packaging.”

Not so long ago, Australian Customs and Border Protection grabbed a shipment of 10 million illicitly branded cigarette packages as the new regulation become effective. Customs representatives discovered the contraband while inspecting a sea cargo destined for Sydney, which was sated to contain ceramic tiles. The shipment contained nearly A$4 million in unpaid taxes, according to agency representatives. Customs and Border representative Campbell Massie refused to declare which brand the grabbed cigarettes were.

The Australian government has also made stricter the penalties for smuggling cigarettes, raising the maximum penalty to 10 years in jail.

BAT produces Dunhill, Pall Mall, Lucky Strike and Australia’s best-selling cigarette brand, Viceroy. Philip Morris International (PM) is also following the case in the international arbitration. The Australian suggestion infringes a treaty with Hong Kong and may lead to billions of dollars in injuries, the manufacturer of Marlboro cigarettes declared.

Imperial Tobacco, Europe’s second-largest cigarette manufacturer, announced higher operating profit as the producer of Davidoff cigarettes raised prices to fight falling shipments in Europe. Adjusted operating revenue increased to 3.15 billion pounds ($5.1 billion) within a year from 3 billion pounds registered a year ago. That compares with the 2.20 billion average forecasts of several industry experts. The stock increased approximately 2.5%, the most significantly since September 20.

Imperial Tobacco has presented cigarette packages that flip open with one hand and flavored filters to increase demand and compensate decreased consumption in Spain, where a worsening in the economy made it to take a1.2 billion-pound non-cash worsening charge. Price increases in the U.K., where Imperial is the market leader, also contributed to boost. Profit in the European Union lifted 5%.

“The situation in EU is complicated, but the company is doing its best to overcome this tough position,” Chief Executive Officer Alison Cooper stated in the interview. The stock was higher by 1.5% at 2,364 pence at London trading.

The operating margin for tobacco extended to 43% from 42.6%, which according to experts were positive despite increased marketing spending on the company’s key brands.

Imperial increased the full-year dividend 10% to 105.6 pence a share, bringing to a total payout of 53% of earnings. Industry experts have estimated a104.5 pence. Imperial Tobacco has also announced that it repurchased 530 million pounds of its own stock.

Cigarette revenue increased 5% to 8 billion pounds. Volume decreased 2.5%, better than the company’s September estimates of a 3.5% decrease and an improvement on the 4% fall in shipments during the first half. According to experts, shipments in the 2020 may decline 0.5%.

Imperial is proceeding to encounter complicated trading conditions in the majority of its European markets.

Imperial is the market leader in Spain and the second largest cigarette manufacturer in France and Germany. For instance, in Germany Imperial’s market share dropped by 0.7 percentage point to 25% as smokers give preference to lower-price brands.

The whole shipments of West, Gauloises and Davidoff brands gained 6%. All these cigarette brands constitute more than 30% of the Imperial’s volume.

U.S. accounts for approximately 9% of Imperial’s tobacco profit, where both the revenue and profit dropped by 10% despite a 5% decline in the cigarette market.