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Cigarette companies settle dispute over payments to 17 states

Philip Morris USA said Tuesday that it and other tobacco companies have reached an agreement with 17 states to settle a long-running dispute over how much money the companies must pay under the 1998 national tobacco settlement.

Under the agreement announced late Tuesday, the states, including Virginia, each will receive their share of about $4 billion that was paid into a disputed payments account. In return, Philip Morris USA, R.J. Reynolds Tobacco Co. and Lorillard Inc. will receive credits against future payments to the states.

In 1998, Henrico County-based Philip Morris USA, the maker of Marlboro cigarettes, and other major cigarette companies agreed to pay $206 billion to 46 states, including Virginia, over 25 years to cover smoking-related health care costs. Virginia’s share was estimated at about $4 billion.

So far, the states have received about $85 billion, but a dispute arose over how much the payments should be adjusted as a result of the major cigarette companies losing market share to competitors that did not join the settlement. The dispute has been in arbitration.

Philip Morris USA, a subsidiary of Henrico-based Altria Group Inc., said it will authorize the release of about $190 million of the $458 million that it has paid into the disputed payments account to the states that are part of the deal announced Tuesday.

The company said it is prepared to continue arbitration with other states that were not part of the new agreement. The company said it would receive an estimated reduction in its settlement payment obligations of about $450 million, but that amount could change depending on a variety of factors.

The states participating in the settlement are Alabama, Arizona, Arkansas, California, Georgia, Kansas, Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Tennessee, Virginia, West Virginia and Wyoming. In addition, the settlement includes Puerto Rico and the District of Columbia.

 
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Posted by on March 25, 2013 in Tobacco News

 

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Earnings Preview: Altria Group Inc.

Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA, is expected to report higher fourth-quarter profit and revenue when it releases its results before the stock market opens Friday.

Altria
Tobacco company Altria Group Inc.

As Americans buy fewer cigarettes amid increasing health concerns and rising tobacco taxes, Altria’s volumes have fallen markedly, but the company has managed to maintain its profit by raising its prices.

WHAT TO WATCH FOR: Whether Marlboro, the top-selling U.S. cigarette brand, can retain its command of the market. Richmond-based Altria said its top-selling Marlboro brand lost almost 1 percentage point of market share in the third quarter to end up with 41.7 percent of the U.S. market. Its Virginia Slims, Parliament and Basic brands also lost retail market share.

Volume declines for Marlboro drove down the total number of cigarettes Altria sold by 9 percent to 33.3 billion cigarettes for the quarter compared with a year earlier, even though volume for its discount cigarette brands increased 9.5 percent.

Altria has introduced several new products with the Marlboro brand, often with lower promotional pricing. They include special blends of both menthol and non-menthol cigarettes to try to keep the brand growing and steal smokers from its competitors.

But the company still faces pressure in the current economy from less-expensive brands like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Even so, Altria has raised prices on some brands and maintained its profit per pack. Marlboro sold for an average of $5.74 per pack during the third quarter, compared with an average of $4.22 per pack for the cheapest brand, Altria said.

Marlboro Gold Touch
Marlboro Gold Touch and Marlboro Gold Fine Touch cigarettes

Altria and other tobacco companies also are looking to cigarette alternatives — such as cigars, snuff and chewing tobacco — for growth. So analysts will want to see how Altria’s Black & Mild cigars and Copenhagen and Skoal smokeless tobacco products, as well as Marlboro Snus, perform. It also owns a wine business, which saw gains in the quarter, holds a voting stake in brewer SABMiller, and has a financial services division.

Smokeless tobacco volumes were essentially flat in the third quarter and had 55.2 percent of the market, which is tiny compared with cigarettes. Volume for cigars grew about 4 percent during the period.

Altria, the first of the nation’s largest tobacco companies to report its fourth-quarter and full-year earnings, continues to work on cutting general and manufacturing costs. Last quarter the company announced plans for an additional $400 million in cost savings by the end of 2013 in advance of anticipated cigarette volume declines industrywide. It said the restructuring charges will total 11 cents per share in the fourth quarter.

WHY IT MATTERS: Increased spending on premium brands like Marlboro could signal consumers are adjusting to paying more for cigarettes following federal and state tax increases. Consumer spending continues to be critical to a strong rebound from the worst economic downturn since the Great Depression.

WHAT’S EXPECTED: Analysts expect Altria to earn 49 cents per share on sales of $4.23 billion, according to FactSet.

LAST YEAR’S QUARTER: Altria reported net income of 44 cents per share on revenue of $4.14 billion. Figures for both periods exclude excise taxes the company passes through to the government.

 
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Posted by on January 26, 2012 in Tobacco Facts

 

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Behind Cigarettes’ Brands

Newport Non-Menthol continues to hang in, Marlboro’s promotions will keep building share and Pall Mall’s performance is increasing, according to retailers in the latest UBS-CSP Tobacco Survey.

Marlboro Cigarettes
Packs of Marlboro cigarettes

As revealed in last week’s CSP/Tobacco E-News, retailers in the survey, representing 50 chains and nearly 8,000 stores, expect Philip Morris USA‘s Marlboro to take the lead in gaining market share in the upcoming year.

When asked, however, if they thought the company’s Marlboro Leadership Price (MLP) promotion helped the brand’s share trends in 2011, there was a pretty even mix of yes (48%) and no (51%) answers. (The program, implemented last year, in essence, asks operators to forgo part of their typical markup in exchange for incentives).

Retailer responses included:

“I’m in a fair trade state and was already selling at state minimum. Made zero impact on my numbers.”

“The price strategy of closing the gap of the premium to discount encourages trade-up by consumers.”

Nik Modi, UBS analyst, pointed out that not everyone signed on to the program, estimating about 60% to 70% participation. So, he said, the 48% means “that almost anyone who has signed it is seeing some kind of market share progress.”

For Lorillard Inc.’s Newport Non-Menthol, retailers were also evenly split, with 50% on each side of whether the brand has shown year-over-year growth. “What’s interesting to me,” Modi said, “is the price increase and reductions in the buydown, and the brand is still kind of hanging in there. … It looks like it has more staying power than maybe some people predicted.”

Responses included:

“Newport N/M is being retailed as a fourth-tier product with a premium tier name badge. As we all know in this business, price sells.”

“It was growing steadily since launch. When they took pricing it dropped down two straight months. Since then it has gradually been increasing, but has not again reached its highest pre-increase level.”

Camel Cigarettes
Camel cigarettes packs

For R.J. Reynolds Tobacco Co., 25% of the retailers expect Camel to gain more market share than Marlboro or Newport. Meanwhile, the majority of the retailers (55%) said the company’s Pall Mall brand has shown an increase.

Modi said the Pall Mall responses were better than he expected, but added that he sensed the brand is “still under pressure,” as it makes most of its volume gains in lower-income regions, where PM USA has stepped up promotion of its L&M brands. To his point, one retailer said “L&M discounts have eaten into Pall Mall sales in the last quarter.” Meanwhile, another said RJRT is increasing share because “they are deep discounting Pall Mall and this brand has more awareness than L&M.”

Another retailer pointed out an additional reason for growth in the brand. “Due to the large decline in jobs in this area, there has been a large increase in lower price tobacco product sales. I expect this will continue until the economy improves.”

 
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Posted by on January 26, 2012 in Tobacco Facts

 

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