Tobacco Winners & Losers: Altria Group

Lawmakers have approved a tax hike for cigarettes that is expected to curb smoking further and crimp profits for tobacco makers.

Approval of the State Children's Health Insurance Program proposes to raise the federal excise tax on cigarettes to $1 per pack, a 61 cent raise.

The bill -- passed by the Senate on Thursday -- is likely to be signed into law by President Barack Obama after differences are resolved between the House and Senate versions of the bill, a Fitch Ratings analyst said.

Fitch cites a Congressional Budget Office estimate that cigarette sales volume declines 2.5% to 5% for every 10% increase in prices. So Fitch projects that the proposed increase could lead to a 3.5% to 7% decline in the volume of cigarettes sold. That assumes an average retail price of $4.45 per pack.

"While tobacco products are relatively price inelastic, they are not perfectly inelastic," Fitch Senior Director Wesley E. Moultrie II said.

Philip Morris USA, the nation's biggest cigarette maker, reported Thursday that U.S. sales volume fell 2.1% during the last three months of 2008. The cigarette maker is owned by Richmond, Va.-based Altria Group (MO Quote).

Cigarette sales have been in steady decline as smokers yield to health concerns, smoking bans and social pressure.

Altria and its next biggest rival, Reynolds American (RAI Quote), have both bought smokeless tobacco companies to diversify beyond cigarettes. Reynolds bought Conwood in 2006, and Altria closed on its acquisition of UST earlier this month.

Altria shares fell 30 cents, or 1.8% to close at $16.54 Friday, while share of Reynolds fell 84 cents, or 2.2%, to $38.18. British American Tobacco's (BTI Quote) ADR closed up almost 2.9% at 55.10 and Lorillard (LO Quote) closed down almost 3.6% at $59.46.