RICHMOND, Va. — People have more time on their hands, stimulus checks and fewer e-cigarette options, which led Altria to improve its cigarette decline rate.
Altria’s CEO Billy Gifford gave updates on this performance, as well as on e-cigarettes and the company’s IQOS products, during the Richmond, Va.-based tobacco company’s second-quarter earnings call.
Altria’s net revenues decreased 3.8% to $6.4 billion in the second quarter, mostly due to lower net revenues in the smokable product segment, the company said; however, for the first half of the year, net revenues increased 3.9% to $12.7 billion.
“Despite the challenges of the COVID-19 pandemic in the U.S., our employees continue to execute against our 10-year vision with strong focus and commitment,” Gifford said. “Over the first half of 2020, we believe Altria showed resilience in volatile market conditions, growing adjusted diluted earnings per share by 8.5%, driven by the outstanding financial performance of our core tobacco businesses. We’ve also hit key milestones and made steady progress behind our noncombustible product portfolio.”
Click through to read three highlights from Gifford’s report …
Cigarette outlook improves
While the COVID-19 pandemic has led to high unemployment rates, federal government efforts thought stimulus checks and increased unemployment benefits have helped ease economic hardship for low- and middle-income Americans, Gifford said.
“And these efforts have likewise benefited our adult tobacco consumers,” he added.
While adult tobacco consumers are making fewer trips to the store, they are increasing their tobacco purchases by buying more packs and cans per trip, Gifford said.
That fact, coupled with the opportunity for more tobacco usage occasions and a move from vape to cigarettes since the U.S. Food and Drug Administration (FDA) banned flavored cartridges, contributed to improved tobacco industry volume performance in the second quarter, Gifford said.
“Altria revises its 2020 estimated full-year domestic cigarette industry adjusted decline rate to be in a range of 2% to 3.5% from a range of 4% to 6% based on better year-to-date industry performance and expectations for continued category resilience,” the company said.
Altria’s Marlboro cigarettes made up about 43% of the cigarettes retail share for the second quarter, according to the company.
When asked if cigarettes performance this year has influenced Gifford’s outlook on the long-term industry volume declines, Gifford said it’s too early to determine the exact impact of people having more discretionary income and moving from e-vapor to combustible cigarettes after the FDA’s flavor ban.
Non-combustible portfolio expands
Altria is also working on combustible cigarette alternatives. The FDA recently said Altria subsidiary Philip Morris USA could market its heat-not-burn device, IQOS, as a modified risk tobacco product.
Because a large group of conventional cigarette consumers tried e-vapor and rejected it, Gifford said, this is a great category for IQOS to satisfy what they are looking for.
“We're excited to reaccelerate our engagement with adult smokers looking for alternatives to their traditional cigarettes in pursuit of our vision to responsibly lead the transition of adult smokers to a non-combustible future,” Gifford said.
E-cigarette sales decline
E-cigarette unit sales decreased about 14% in the second quarter compared to the previous year, Altria said.
Earlier this year, Gifford said Altria noted an increased in the number of adult smokers ages 50 and up who moved from the e-vapor category back into cigarettes. This benefited volumes from Marlboro and the cigarette category.
Controversy surrounding Juul, which Altria has a stake in, also came under fire this year for teen illnesses allegedly connected to the e-cigarette devices. In response, the FDA halted sales of flavored vaping pods. Now tobacco manufacturers who have released products within a certain time frame must turn in premarket tobacco applications (PMTAs), which would allow them to continue selling vaping and other new products in the United States.
“We believe the e-vapor category growth may encounter a pause over the next few years as many products will be removed from the market if PMTA’s are not submitted or FDA does not grant market authorization,” Gifford said.
The PMTA deadline was pushed to Sept. 9 amid the coronavirus crisis.