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Marlboro Parent Altria Revenue Falls Short as Cigarette Shipments Decline, Buys Rest of On Brand

Daniel Acker | Bloomberg | Getty Images
  • First-quarter earnings exceeded analysts' estimates, as the tobacco company continues to expand outside its smoking business.
  • However, after excluding excise taxes, Altria's revenue fell short of expectations.
  • The company announced it acquired the remaining 20% stake in On, a nicotine pouch product.

Altria's first-quarter earnings declined as revenue fell short of estimates and cigarette shipments continue to decline.

The parent of Marlboro cigarettes has been shifting its business away from traditional tobacco products, and announced it acquired the remaining 20% stake in On, a nicotine pouch product.

The company's stock was down 1.1% lower in late morning trading.

Here's what the company reported for the first quarter compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.07 adjusted vs. $1.05 expected
  • Revenue: $4.88 billion, excluding excise taxes, vs. $4.98 billion expected

Net income decreased to $1.42 billion, or 77 cents per share, from $1.55 billion, or 83 cents per share, a year earlier. 

Excluding items, Altria earned $1.07 per share, topping the $1.05 per share expected by analysts surveyed by Refinitiv. 

Revenue fell 5.1% to $6.04 billion from $6.36 billion a year earlier. However, after excluding excise taxes, its revenue was $4.88 billion, which was shy of the $4.98 billion, analysts expected.

Total cigarette shipments to wholesalers fell 12% year over year. However, Altria estimates cigarette industry shipments fell 2% in the quarter, which was flat with year-earlier levels.

Altria once again lowered the value of its Juul vaping brand, this time writing its value down by $200 million. The company said the fair value of its stake, which it acquired for $12.8 billion in December 2018, was worth $1.5 billion at the end of March.

Although the total vaping category increased 24% year over year, Juul's retail share fell 6% year over year to 33% of the category, the company said.

"Against a challenging comparison, our tobacco businesses performed well in the first quarter and we continued to make progress advancing our non-combustible portfolio," said CEO Billy Gifford.

Gifford also attributed some of that success to the stay-at-home trends that the pandemic brought as people were able to smoke at home more easily throughout the day.

"You also have the offsets, you have the government stimulus that just came out and we'll see how the consumer thinks about that as their mobility has increased and what other areas of discretionary spend they could use that stimulus towards," he added in a conference call.

Altria and other tobacco companies could be facing a tougher regulatory environment. On Thursday, the Food and Drug Administration, which regulates tobacco products in the U.S., said it will propose a ban on menthol-flavored cigarettes. Menthol cigarettes have often been disproportionately used by people of color. The vast majority of Black smokers use menthol cigarettes, and Black men have the highest rates of lung cancer deaths in the U.S.

Altria has a 26% share of the menthol market, which makes up about a third of all cigarettes sold in the U.S. About 17% of Altria's cigarette volume is in this category, according to a recent report from Bernstein analyst Callum Elliott.

In addition, the Biden administration announced last week that it is considering placing a cap nicotine levels in cigarettes.

All of these potential changes are at a very early stage and are will likely be challenged by the industry.

Altria previously sent a letter to the FDA asking it to spread the word that nicotine, the addictive ingredient in cigarettes, doesn't cause cancer. The company said this would help smokers transition to potentially less risky noncombustible options, such as their heated tobacco stick Iqos and nicotine pouch On.

See the full earnings release here.

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