Marlboro Friday occurred on April 2, 1993, when Philip Morris announced a 20% price cut to their Marlboro cigarettes and company shares plunged 26%.Nine years later, in 2002, there was similar carnage when Philip Morris USA raised discounting levels.
Nine years later there are signs of another price cut, according to a note from Goldman Sachs.
Our increased caution is based on three factors:
(1) Overall industry-wide price growth is decelerating in the retail data, with flattish price/pack trends in recent months vs. +4-5% a year ago. Some of this is due to a negative mix, but absolute price points have not moved up much in recent months (MO’s price/pack is up 0.6% since June).
(2) A weak macro backdrop is leading to down-trading to cheaper brands as the discount segment has seen 110 bp of share growth since Aug 2010.
(3) Marlboro’s market share has been on a downward trajectory over the past few quarters.
Despite the renewed caution, Goldman is keeping a neutral rating on Altria, which owns Philip Morris’ U.S. operations. The investment bank has a higher outlook for Philip Morris International and Lorillard.
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