In a recent newsletter, Citi Group Tobacco Analyst Bonnie Herzog unveiled Lorillard’s plans to increase the price of its best-selling brand, Newport, by 5 cents per pack. The news was collected from industry sources and distributed late yesterday.
The decision to raise the prices follows the actions of Lorillard’s competitors, Philip Morris and RJ Reynolds, who also initiated a recent increase of close to 5 cents on their brands.
Overall, we find these pricing actions positive since it indicates to us that the industry still has some pricing power,” said Herzog in the newsletter. “Furthermore, it suggests that even in the face of a potential federal excise tax increase (which we believe is likely) pricing power exists.”
Herzog also revealed that in a recent consensus, 92% of our trade contacts believe that there is at least a 50% chance that there will be a federal excise tax increase on cigarettes effective early 2008 based on a proprietary survey we just conducted. Herzog also stated that she believes there will be an FET increase, likening the probability to 80%.