Altria and Reynolds American; Report 2014

Altria and Reynolds American, the maker of Winston cigarettes http://cigarette-deals.com/winston-cheap-cigarettes regularly raise their prices to offset declining cigarette shipment volumes. Bearish arguments against both companies usually declare that rising prices, exacerbated by higher excise taxes, will hit a ceiling and cause revenues to decline.

That argument initially makes sense when we compare the price of cigarettes in the U.S. to other nations. Forty percent of adults smoke in Russia, where a pack of cigarettes costs $1.74 with taxes included. By comparison, 18% of adults smoke in the U.S., where an average pack of cigarettes (averaged across all states) costs $6.36.

But when we calculate the price of cigarettes as a percentage of average monthly income (based on UNECE and ILO statistics), the average Russian spends 0.17% on one pack of cigarettes, compared with 0.14% for the average American.

Meanwhile, smokers in the U.K. spend $10.99 (0.32% of their monthly income) on a pack of cigarettes, yet the country has a higher smoking rate of 19%. In Australia, where a pack of cigarettes costs $12.14 (0.47% of monthly income), 17.5% of adults still smoke. These comparisons suggest that Altria and Reynolds American can probably afford to nearly double their U.S. prices over the next decade without any noticeable impact on smoking rates.

However, increased health awareness and public bans against smoking could reduce the nationwide smoking rate. Higher federal and state excise taxes, which rose over 120 times between 2000 and 2013, could also throttle tobacco companies' ability to raise their own wholesale prices.

Will Cigarettes Be Totally Banned?

Retailing of cigarettes is changing. CVS Caremark, the nation's second-largest pharmacy chain, announced last week it will stop selling tobacco products at its more than 7,600 drugstores. The company said it made the decision in a bid to focus more on providing health care, but medical and public health leaders predicted pressure will increase on companies like Walgreen Co. and Wal-Mart Stores Inc. to follow suit.

"I do think, in another few years, that pharmacies selling cigarettes will look as anachronistic" as old cigarette ads featuring physician endorsements look today, said CDC Director Dr. Tom Frieden.

These developments have made many in public health dream bigger. It's caused Myers' organization and others to recently tout the goal of bringing the adult smoking rate down to 10 percent by 2024, from the current 18 percent. That would mean dropping it at twice the speed it declined over the last 10 years.

The bigger goal is to reduce U.S. smoking-related deaths to fewer than 10,000, from the current level of 480,000. But even if smoking rates dropped to zero immediately, it would take decades to see that benefit, since smoking-triggered cancers can take decades to develop. But while some experts and advocates are swinging for the fences, others are more pessimistic. They say the key to reaching such goals is not simply more taxes and more local smoking bans, but action by the U.S. Food and Drug Administration to regulate smoking.

A 2009 federal law gave the FDA the authority to regulate tobacco products. The law barred FDA from outright blocking the sale of cigarettes, but the agency was free to take such pivotal steps as prohibiting the use of appealing menthol flavoring in cigarettes and requiring cigarette makers to ratchet down the amount of addictive nicotine in each smoke.

But nearly five years after gaining power over cigarettes, FDA has yet to even propose such regulations. Agency officials say they're working on it. Many believe FDA's delay is driven by defense preparations for an anticipated battery of legal and political challenges.

A spokesman for Altria Group Inc., the maker of Marlboro, said the company supports FDA exercising its regulatory authority over tobacco products. But as a whole, the industry has tended to fight regulation. Some of the nation's largest tobacco companies - though not Altria - sued to stop FDA-proposed graphic warning labels on cigarette packs. A federal court blocked the ads.

"The industry makes money as long as they can delay regulation," said Kenneth Warner, a University of Michigan public health professor who is a leading authority on smoking and health.

Warner and Michigan colleague David Mendez estimate that, barring any major new tobacco control victories, the adult smoking rate will drop from its current 18 percent only to about 12 percent by 2050. If health officials do make huge strides, the rate could drop as low as 6 percent, they think.

Philip Morris International, Leading Maker of Cigarettes

Coca-Cola is a perfect model of a wonderful business. Altria Group and Philip Morris International are two tobacco companies that have so many important features with Coca-Cola that long-term investors ought to hold all three in the same regard Coca-Cola, Altria and Philip Morris International are leading companies in their respective markets. Coca-Cola has a

Altria plans e-cig sales, Marlboro demand falls

Altria Group, the largest seller of tobacco in the U.S., plans to introduce an e-cigarette this year, chasing smaller rivals as demand for traditional smokes declines.
The e-cigarette will be sold in an undisclosed market starting in the second half of 2013, Richmond, Virginia-based Altria said today in a statement. The company declined to provide additional information until a conference call with analysts today, according to a story in Bloomburg News.
CEO Martin Barrington is trying to catch up to smaller rivals such as closely held NJOY and Lorillard Inc., which says its Blu e-cigs brand controls more than 40 percent of the U.S. market. Reynolds American Inc. said this week it plans to expand its Vuse e-cigarette this year.
First-quarter cigarette shipments fell at Altria, Winston-Salem, North Carolina-based Reynolds and Greensboro, North Carolina-based Lorillard. Altria’s U.S. volume tumbled 5.2 percent, with top-selling and most popular cigarettes, known as Marlboro, slipping 5.5 percent.
Lorillard CEO Murray Kessler told analysts yesterday the company estimates that e-cigarette sales displaced consumption of about 600 million cigarettes in the first quarter. That translates to an annual rate of about 2.4 billion cigarettes, accounting for about 1 percent of the U.S. market, according to Kenneth Shea, a Bloomberg Industries analyst in Skillman, New Jersey.