Tobacco Update (6/5/2008) presented by Nik Modi, UBS Tobacco Analyst..


June 6, 2008 - Modi commented on the rough first quarter 2008. Industry volume down 3% to 4%. Richmond, Va.-based Philip Morris USA (PM) was down 1.2% in the quarter, while Winston-Salem, N.C.-based R.J. Reynolds took a hit with a 12% drop. Cigarette manufacturers, according to Modi, are feeling the heat from stockholders and are moving to cut promotional incentives and raise prices. (In Raleigh, NC PM within two months again raised the price on a carton of Marlboro and Basic one dollar and c-store owner off invoice rebate on a carton of Marlboro went $3.50 to $2.90. The monthly check per carton
of Marlboro from $3 to $2, Basic from $2 to $1 and eliminated for Parliament - TW.) Modi said that one of the subcategories supporting tobacco is moist smokeless tobacco (MST), up a healthy 7%. In addition, premium brands showed a 2% growth in volume. (We find in the Raleigh, NC area MST users are moving away from MST premium brands (e.g., Skoal, Copenhagen, Kodiak) to price/value brands especially Conwood's Grizzly.- TW) Modi's comments gave a boost to shares of UST (U.S. snuff players.) whose shares had been down 12% thanks to concerns about competition from PM, and speculators no longer believed PM would buy UST and competition from the deeply discounted brand Bobcat. Modi also commented on the potential impact of FDA regulations and the upcoming Lorillard spinoff. References: Tobacco Tumult a leading a category takes beating in first-quarter 2008 by Angel Abcede, CSP Daily News, 6/6/2008 and Analyst Upgrade Boosts UST by Carl Gutierrez, Forbes.com.

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