Tobacco.org

Who's Serving Up Smoking Results? 

As global excise taxes on tobacco products continue to rise, the cigarette producers have their work cut out for them in protecting profits in spite of declining volume. Smaller producers such as Vector Group (NYSE: VGR) could be particularly at risk as consumers decide how much they're willing to pay for a cigarette break.

Domestically, Altria hasn't fared much better, with declining sales and volume owing in part to rising excise taxes, while Reynolds American (NYSE: RAI) also reported an 11% volume drop. On the other hand, Lorillard (NYSE: LO) served up a better-than-average 6.1% volume decrease even as it showed a 2.6% increase in operating income. British American Tobacco holds a 42% stake in Reynolds American.

While the tobacco market isn't growing in the U.S. now, consumers here aren't completely scared off by increased excise taxes. Similarly, global tax increases are just beginning to unfold. And while those taxes are not likely to kill the industry, global consumers are increasingly turning to gray- or black-market smokes as a result of increased excise taxes, leaving growth prospects for premium products like Marlboro in some jeopardy.

Jump to full article »