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Altria : Marlboro Maker Is Riding the Cigarette's Demise

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01/31/2019 | 12:50pm EDT

By Jennifer Maloney

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

Stocks mentioned in the article
ChangeLast1st jan.
ALTRIA GROUP 0.60% 48.78 Delayed Quote.-1.24%
CRONOS GROUP INC -2.16% 20.88 Delayed Quote.48.40%
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Financials ($)
Sales 2019 19 708 M
EBIT 2019 10 567 M
Net income 2019 7 488 M
Debt 2019 25 979 M
Yield 2019 6,74%
P/E ratio 2019 12,46
P/E ratio 2020 11,11
EV / Sales 2019 5,92x
EV / Sales 2020 5,82x
Capitalization 90 721 M
Duration : Period :
Altria Group Technical Analysis Chart | MarketScreener
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Technical analysis trends ALTRIA GROUP
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 17
Average target price 58,7 $
Spread / Average Target 21%
EPS Revisions
Howard A. Willard Chairman, CEO, COO & Executive Vice President
William F. Gifford Vice Chairman & Chief Financial Officer
George Muñoz Independent Director
Thomas F. Farrell Independent Director
Dinyar S. Devitre Independent Director
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