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Analysts Expect Philip Morris To Raise US Cigarette Prices

Philip Morris is expected to raise US cigarette prices by 10 to 20 cents per pack by mid October to help the company pay legal settlements with the states, according to several analysts. Philip Morris is the industry's pricing leader, and other tobacco companies are likely to match the price increase.

The companies have raised prices five times in the last 18 months, adding 63.5 cents per pack. Philip Morris' stock has dropped 34 percent this year, and it has been the worst performer in the Dow Jones Industrial Average.

In January, the federal excise tax on cigarettes will increase by 10 cents per pack. The industry is also facing a 4 cent per pack increase in the amount it owes the states next year under the national tobacco settlement, according to Morgan Stanley Dean Witter analyst David Adelman.

The companies will likely raise prices more than the necessary 14 cents, according to Adelman. "[T]hey're going to take more than that to give themselves extra promotional flexibility," said Adelman, who believes the increase will be about 20 cents per pack. "That would be a very significant increase by historical standards."

Bloomberg News, (8/13/99) "Philip Morris Expected to Raise U.S. Cigarette Prices (Update1)"
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