Marlboro's Maker Forecasts More Declines in Cigarette Sales -- WSJ
February 01 2019 - 02:02AM
Dow Jones News
By Jennifer Maloney
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 1, 2019).
Marlboro maker Altria Group Inc. said Thursday it sees U.S.
cigarette sales falling even faster than it had expected,
validating the company's outsize investment in e-cigarettes.
Altria CEO Howard Willard on Thursday offered new projections on
U.S. cigarette industry volumes, saying cigarette sales would
continue to decline at a faster clip than they have in the past as
smokers switch to e-cigarettes. He also said his company's recent
$12.8 billion investment in vaping startup Juul Labs Inc. would
allow the tobacco giant "to support and even accelerate transition
to noncombustible alternative products."
Altria said U.S. cigarette sales volumes declined 4.5% last year
-- more sharply than expected -- as e-cigarette sales grew 35% and
higher gas prices also damped cigarette sales. Over the same
period, the company's market-leading Marlboro brand declined 5.2%
in volume. Altria now expects U.S. cigarette volumes to decline
3.5% to 5% this year and 4% to 5% a year through 2023, while
e-cigarette volumes grow 15% to 20% a year, Mr. Willard said.
Altria's share price is down more than 14% since The Wall Street
Journal first reported in November that the tobacco giant was in
talks with Juul, whose sales exploded last year to capture 75% of
the retail e-cigarette market. Altria ultimately took a 35% stake,
valuing the upstart at $38 billion. Mr. Willard, a company veteran
who took over as Altria's chairman and CEO in May, sought Thursday
to allay investor concerns about the deal and a separate $1.8
billion investment in Canadian marijuana company Cronos Group.
Last year "was a transformative year for Altria," Mr. Willard
said on a call with analysts. He said the investments in Juul and
Cronos would allow Altria to participate in categories poised for
rapid growth overseas as U.S. cigarette sales fall.
Calling Juul's growth "remarkable," Mr. Willard said the
e-cigarette company had more than $1 billion in revenue in 2018, up
from $200 million in 2017. It sold more than 450 million refill
pods last year, he said.
And early signs show that Juul is quickly gaining traction in
overseas markets, he said. Juul told Altria that in the U.K., where
Juul pods must contain a lower level of nicotine than they do in
the U.S., Juul recently became the No. 1 e-cigarette brand in the
Sainsbury chain, where it has captured 23% of e-cigarette retail
sales less than 12 weeks after its launch.
Discussing Altria's 45% stake in marijuana grower Cronos Group,
Mr. Willard said the global cannabis market could reach $40 billion
in 10 years with no new legalization laws passed, and as much as
$250 billion if marijuana were legalized world-wide. Canada
legalized recreational pot sales in October, and a number of other
countries have legalized medical marijuana sales. In the U.S.,
federal law prohibits marijuana but 10 states have legalized its
recreational use and more than 30 allow medical marijuana.
Cronos grows and sells medical and recreational marijuana
products mainly in Canada, with smaller medical growing and
distribution operations in such countries as Germany and
Australia.
"You shouldn't assume that our existing product portfolio at
Cronos is where we are going to stop," Mr. Willard said. "Both we
and Cronos think that there are opportunities really across the
world in a variety of product categories, both recreational and
medicinal."
Altria on Thursday said profit fell in the fourth quarter as it
incurred higher costs related to its acquisitions, impairment
charges and the exit of some of its businesses.
The company said net income for the quarter was $1.25 billion,
or 66 cents a share, compared with $4.97 billion, or $2.60 a share,
a year earlier. Last year's earnings included a $2.8 billion income
tax benefit.
--Kimberly Chin contributed to this article.
Write to Jennifer Maloney at jennifer.maloney@wsj.com
(END) Dow Jones Newswires
February 01, 2019 02:47 ET (07:47 GMT)
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