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.

Big Tobacco Tries to Don A New Look: Are You Buying?

ig Tobacco wants to reclaim the hearts and wallets of most adult Americans by rebranding its tarred image — pitching “smokeless” e-cigarettes, embracing the mantra “harm reduction,” and funding science that could turn tobacco plants into life-saving medicine. That tactical shift, not surprisingly, has cultivated cynics like anti-tobacco crusader Patrick Reynolds, grandson of R.J. Reynolds, who calls the moves mere “window-dressing PR campaigns."

Even at Reynolds American Inc. (RAI) — maker of Camel cigarettes online and creator of the slogan “transforming tobacco” — spokesman Rob Dunham admits the strategy is “not without its challenges; there’s a lot of history to overcome.”

But amid perhaps the most ambitious image makeover in corporate history, Reynolds American’s new direction got a timely boost Tuesday. Its recently acquired subsidiary, Kentucky BioProcessing (KBP), emerged as a key player in developing emergency Ebola treatments used on two American missionaries. The medium to produce that medical breakthrough: tobacco plants.

“We embarked on a transformation agenda that, at its heart, is envisioning a tobacco industry that, at some point in the not-too-distant future, looks very different than the one we see today — or the one we’ve seen historically,” Dunham said.

“I’m not sure we would use the word 'rebranding.' The only reason I would balk at that (word) is it almost suggests we’re trying to somehow re-position as a PR exercise to get people to think differently,” Dunham added. “This is at the very core of our business strategy.”

At Reynolds American, top planks in that platform include “our commitment to reduce the harm caused by cigarette smoking,” curbing youth tobacco use, and “migrating historical cigarette smokers to other forms of tobacco that have the potential for far less risk,” Dunham said.

For RAI — and for its top competitor, Philip Morris USA — much of that migration is toward the industry’s fastest rising niche: electronic cigarettes. The battery-operated vaporizers deliver inhaled nicotine without the tar and combustion of traditional cigarettes. Some Wall Street analysts predict e-cigs alone may eclipse the traditional cigarette market within the next 10 years.

Philip Morris Cigarette Shipments Fall 3.5%, Profits Tumble 13%

Inc. (NYSE: PM) reported second-quarter 2014 results before markets opened on Thursday. The tobacco products firm posted quarterly adjusted diluted earnings per share (EPS) of $1.41 on revenue of $7.8 billion. In the same period a year ago, the company reported EPS of $1.30 on $7.92 billion in revenues. Thomson Reuters had consensus estimates for EPS of $1.24 and revenue of $7.52 billion.

Currency translation effects cost the company $1.22 billion in quarterly revenues. Operating income totaled $5.8 billion, down 13.4% year-over-year. The company forecast full year EPS in a range of around $5.72 to $5.83, compared with a full-year 2013 EPS of $5.40. The forecast includes a $0.61 per share reduction due to currency exchange rates and a charge of $0.25 per share related to the closing of Philip Morris plants in Australia and the Netherlands. The consensus estimate had called for full-year EPS of $5.14 on revenues of $29.91 billion.

The company’s CEO noted:

    For the second half of this year, we anticipate more challenging quarterly comparisons, particularly in the fourth quarter — which, in 2013, saw currency-neutral adjusted diluted earnings per share grow by 19.4% — due to known business challenges, particularly in Asia, the timing of investments behind the commercialization of our Reduced-Risk Products and the roll-out of Marlboro Red 2.0, as well as costs related to our manufacturing footprint optimization initiatives.

Philip Morris, the manufacturer of cheap Marlboro cigarettes, pays a quarterly dividend of $0.94 for a dividend yield of 4.1%. The company also repurchased 11.6 million shares of its own stock in the second quarter at a cost of $1 billion. Philip Morris plans to spend $18 billion on share repurchases in a three-year program that began in the third quarter of 2012. So far the company has spent $11.1 billion on share buybacks.

The proposed merger between Lorillard Inc. (NYSE: LO) and Reynolds American Inc. (NYSE: RAI) will create a stronger competitor to Philip Morris internationally, as well as to the domestic seller of Marlboro cigarettes, Altria Inc. (NYSE: MO). The company’s shares traded up about 1.1% at $85.50 in Thursday’s premarket session. The stock’s 52-week range is $75.28 to $91.81. Thomson Reuters had a consensus analyst price target of around $88.70 before this report.

Indonesia Refuses to Sign Convention on Tobacco Control

The Government in Indonesia took a decision not to sign Framework Convention on Tobacco Control (FCTC) in order to protect the countrys tobacco industry. According to Faiz Ahmad, the chief of beverage and tobacco industries at the industry ministry, the decision is very effective because it will work due to existence of the agency which

Cigarette Companies Fall in Line With Price Increases

Altria's Philip Morris USA on May 7 announced to the trade a decrease in off-invoice promotional allowances of six cents per pack on Marlboro and L&M cigarettes, reducing the effective off-invoice promotional allowance to two cents per pack on Marlboro and 15 cent per pack on L&M, said Nik Modi, tobacco analyst at RBC Capital Markets, Chicago, in a research note Wednesday night.

Richnond, Va.-based PM USA is also taking a list price increase of $1.10 per carton on Parliament and 60 cents on the remainder of its portfolio, added Modi. The changes are effective on shipments on or after May 11, 2014.

"This price increase came roughly one month earlier than the price increase last year (which was on June 5th, 2013)," he said. "We expect [Lorillard and Reynolds American] to follow with their respective price increases by week's end. We see [the] announcement as a positive for our bullish thesis on the tobacco pricing environment. As has been the case historically, we expect the Big Three tobacco players to continue their trend of taking price increases on cigarettes twice a year and maintaining healthy net price realization of 3% to 4%."

They didn't wait that long. Greensboro, N.C.-based Lorillard [on May 8] announced to the trade a 60-cents-per-carton (six-cents-per-pack) increase on its entire portfolio, including on Newport and Maverick, Modi wrote in a followup note. Lorillard's price is effective on orders on or after May 9, 2014.

Also on May 8, Winston-Salem, N.C.-based RJ Reynolds Tobacco announced price increases on its cigarette brands. In line with PM USA's promo reduction and Lorillard's price increase, RJ Reynolds is raising prices across its entire portfolio by 60 cents per carton (six cents per pack). Reynolds price increase is effective on orders on or after May 8, 2014.

New York City-based Wells Fargo Securities analyst Bonnie Herzog wrote, "Overall,the cigarette promo decreases/list price increases that [PM USA] and [Lorillard] have taken are positive and indicate continued pricing power, in our view. Given that consumption will likely continue to decline in the midsingle-digit range, pricing is necessary to drive top-line growth."

And following the Big Three, Morrisville, N.C.-based Liggett Vector Brands also took a list price increase on Liggett Select, Eve, Grand Prix and Pyramid of 60 cents per carton (six cent per pack), Modi wrote. Liggett's price is effective on orders on or after May 12, 2014. "We expect the next round of price increases to come late fall 2014," he concluded.

Meanwhile, on April 30, Altria's U.S. Smokeless Tobacco announced that it is taking list price increases on straight stock SKUs across its moist smokeless tobacco (MST), snus and dry snuff portfolio, Modi said.

Effective May 11, 2014, Copenhagen, Cope, Skoal, Husky, Red Seal will see list price increases per roll of 30 cents and six cents per can, and WB Cut will see list price increase of 36 cents per carton and six cents per pouch.

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Reynolds American Overall Sales Rose 2.8%

Reynolds American Inc overall sales rose 2.8 percent to $ 1.93 billion, with all operating divisions reporting increased revenue. However, the revenue gain was offset by the cost of products jumping 34 percent year over year to $930 million. Other expenses were up 37.2 percent to $413 million.

Camel edged back ahead of Pall Mall for third place in cigarette market share at 10 percent to 9.5 percent, respectively. Both cigarette brands gained market share year over year even as their combined shipment volumes barely increased. The brands continue to trail Philip Morris USA's Marlboro and Lorillard Inc.'s Newport brands.

Overall shipments were down 3.8 percent year over year to 14.3 billion cigarette sticks. Reynolds' overall share of the cigarette market rose 0.1 percentage points to 26.7 percent compared with a year ago, including Camel and Pall Mall who have a combined 19.4 percent market share.

Market share for Grizzly was up 1.1 percentage points to an industry-leading 31.5 percent. American Snuff Co.'s overall moist-snuff market share rose 0.8 percentage points to 34.6 percent. Natural American Spirit had a 10.7 percent gain in shipments to 800 million cigarette sticks. It has a 1.5 percent market share.

Reynolds said a portion of the market share gains likely came from a decision by the group that measures market share to put more emphasis on sales from convenience stores and gas stations, where the majority of tobacco products are bought.

Bonnie Herzog, an analyst with Wells Fargo Securities, said she was not concerned about Reynolds missing earnings projections because of the market share growth in its four growth brands." "Reynolds' growth brands appear to be on solid footing," Herzog said. "Santa Fe and Grizzly continue to generate impressive results.

"We remain very optimistic that Cameron will be able to lead Reynolds into its next generation of growth, possibly global." Pope said the jockeying in promotional prices by the top three manufacturers could be in Reynolds' favor at the top end."Customers seeking a specific flavor or cachet are not fickle, flaky or ultra-price sensitive," Pope said.

Reynolds reaffirmed its fiscal 2014 adjusted earnings guidance range of $3.30 to $3.45 a share. Reynolds did not comment about a potential deal with Lorillard Inc., which has been speculated for two months. Reynolds did list among its investment risks the July 30 ending of the 10-year moratorium on British American Tobacco buying more Reynolds stock. BAT owns 42 percent of Reynolds as part of Reynolds' $4.4 billion purchase of Brown & Williamson Tobacco Corp. — then a BAT U.S. subsidiary — that was completed July 30,2004.

Philip Morris Earnings Preview

On April 17, Philip Morris International will present its 2014 first quarter earnings. Experts do expect data from Philippines, where an increase in indirect taxes implemented in 2013 affected negatively tobacco industry. Experts say that Philip Morris business in European Union, Eastern Europe, Middle East and Africa was affected by numerous anti-tobacco regulations. Russia is

Lorillard to Release First Quarter 2014 Results on April 24, 2014

Lorillard, Inc. (NYSE: LO), the maker of cheap Kent cigarettes, announced that it will release first quarter 2014 results on Thursday, April 24, 2014.

A conference call for analysts and investors will begin at 1:00 p.m. Eastern Time on Thursday, April 24, 2014, which will be hosted by Murray S. Kessler, Chairman, President and Chief Executive Officer, and David H. Taylor, Executive Vice President, Finance and Planning and Chief Financial Officer. Investors can participate in the conference call by dialing (888) 239-6824 (domestic) or (706) 902-3787 (international). The passcode for this event is: 28927750.

The news release and a live webcast of the conference call will also be available under the Investor Relations section of Lorillard's website. The conference call will be available for replay in its entirety through May 1, 2014. If you wish to listen to the replay of this conference call, please visit Lorillard's website at www.lorillard.com or dial (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter passcode: 28927750.

About Lorillard, Inc.

Lorillard, Inc. (NYSE: LO), through its Lorillard Tobacco Company subsidiary, is the third largest manufacturer of cigarettes in the United States.  Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S.  Newport, Lorillard's flagship premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S.  In addition to Newport, the Lorillard product line has four additional cigarette brand families marketed under the Kent, True, Maverick and Old Gold brand names.

These five brands include 43 different product offerings which vary in price, taste, flavor, length and packaging.  Lorillard, through its other subsidiaries, is also a leading global electronic cigarette company, marketed under the blu eCigs and SKYCIG brands.  Newport, Kent, True, Maverick, Old Gold, blu eCigs and SKYCIG are the registered trademarks of Lorillard and its subsidiaries.  Lorillard maintains its corporate headquarters and manufactures all of its traditional cigarette products in Greensboro, North Carolina.

Kids negatively influenced by tobacco ads online

An increasing number of youngsters exposed to tobacco marketing are being influenced by it, a study reveals.

According to researchers from Dartmouth College in New Hampshire, exposure to direct marketing is associated with increased use of tobacco.

"For several years, the emphasis in the tobacco industry has been on direct marketing, especially to young people who are highly price sensitive and who may find coupons, samples and promotions appealing," said lead author Samir Soneji from Dartmouth.

Soneji's team explored whether exposure to tobacco coupons and websites would increase the chances that a young person would start to smoke.

"We found that both direct mail (coupons) and exposure to tobacco websites were associated with increased chances of smoking initiation and current smoking," Soneji added.

Overall, 12 percent of 15-17-year olds and 26 percent of 18-23-year olds were exposed to either form of direct-to-consumer tobacco marketing.

According to the study, some of the internet marketing infiltrates social media which is widely consumed by teens and young adults.

Since younger consumers are more "price sensitive" to the high cost of tobacco products, a web ad offering a coupon could be perceived very favourably.

Teenagers and young adults, who live in a household with a smoker, may face increased exposure to direct marketing in the form of mailed ads and coupons, the study, published in the Journal of Adolescent Health, emphasised.

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.