Altria Sees Smoker Shift From Vaping To Cheap Cigarettes -- WSJ
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 (May 1, 2020).
Older smokers who had switched to e-cigarettes are turning back
to traditional cigarettes because of negative news coverage and
regulatory crackdowns on vaping, Marlboro maker Altria Group Inc.
But those people are mostly buying discount cigarettes, a trend
that is cutting into Marlboro's market share and is likely to
continue as the economic downturn takes hold and cigarette smokers
trade down to cheaper brands, Altria Chief Executive Billy Gifford
Smokers age 50 and over, who have driven the shift, are more
likely to buy discount cigarettes than younger consumers are, Mr.
Gifford said. Marlboro's U.S. cigarette market share fell half a
percentage point to 42.8% in the first quarter of the year.
Last year, U.S. health officials investigating a vaping-related
lung illness warned against the use of e-cigarettes before they
said that the ailment was linked not to e-cigarettes, but to vaping
products containing marijuana and Vitamin E oil. The Food and Drug
Administration also early this year barred the sale of sweet and
fruity flavored e-cigarette cartridges in an effort to curb a rise
in underage vaping.
The FDA, noting that cigarette smoking is the most dangerous way
to consume nicotine, has encouraged adult smokers to switch to less
harmful products such as e-cigarettes.
U.S. retail-store sales of e-cigarettes have fallen over seven
of the past nine four-week periods, according to a Cowen analysis
of Nielsen data.
Altria said the coronavirus hasn't yet had a material impact on
its sales, as convenience stores and other retail outlets where
cigarettes are sold have largely remained open. The tobacco giant
withdrew its earnings guidance, but said its generous dividend
remained a top priority and that it was maintaining a dividend
payout ratio target of 80% of adjusted diluted earnings per
"The degree of down-trading will depend on several factors
including the depth and duration of higher unemployment and the
severity of Covid-19 impacts," Mr. Gifford said Thursday on a call
with analysts and reporters. The company noted that it could be
offset by lower gasoline prices, increased unemployment benefits
and government stimulus payments.
Altria recently refreshed its Chesterfield brand, a discount
offering the company is marketing to smokers age 40 and older, Mr.
The tobacco giant has a 35% stake in Juul Labs Inc., the
e-cigarette market leader. Juul recorded a $1 billion loss in 2019
as it expanded its workforce and its international footprint, and
is now planning to cut about a third of its staff, The Wall Street
Journal reported Wednesday.
"We feel like the overhead got a bit ahead of itself," Mr.
Gifford said Thursday, referring to Juul. "We certainly believe the
reduction in overhead and that kind of spending is a smart move to
Altria reopened its cigarette factory this month after a
two-week closure because two employees had tested positive for the
virus. The tobacco giant also has paused the rollout of a new
heated tobacco device because of the pandemic.
Altria launched the product in the U.S. last year through a
partnership with Philip Morris International Inc. The rollout of
its IQOS device, which heats but doesn't burn tobacco, began in
Atlanta and Richmond, Va. In March, the company closed its
standalone IQOS stores in those cities, where the sales staff had
been coaching consumers, one-on-one, on how to use it. On Thursday,
Altria said it would delay its planned release in Charlotte,
Altria's cigarette shipment volume fell in the quarter by 3.5%
when adjusted for trade inventories, calendar differences and other
factors. When also adjusted for pantry-loading, it fell by 5%
compared with 3.5% for the overall U.S. cigarette industry, Mr.
Revenue increased 13% to $6.36 billion, topping the FactSet
consensus forecast of $5.79 billion. Net income rose to $1.55
billion, or 83 cents a share, compared with $1.12 billion, or 60
cents a share, a year ago. Adjusted earnings per share were $1.09,
above the FactSet consensus forecast of 98 cents.
Shares of the company rose about 2% to $41.30 in early trading
Write to Jennifer Maloney at email@example.com
(END) Dow Jones Newswires
May 01, 2020 02:47 ET (06:47 GMT)
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