Altria Decreases Juul’s Valuation

Marlboro maker gave update on its third-quarter 2020 call
Photograph: Shutterstock

RICHMOND, Va. — Altria took a $2.6 billion hit on its Juul investment in third-quarter 2020, CEO Billy Gifford said on an Oct. 30 earnings call.

In December 2018, Altria valued its 35% economic interest in the e-cigarette company at $38 billion. Now Altria values its stake in Juul at $1.6 billion as of the end of the third quarter, Gifford said.

“These changes are due to Juul’s revised international expansion plans and the evolving U.S. e-vapor category and associated competitive dynamics," Gifford said. “We continue to believe that e-vapor products, including Juul, can play an important role in tobacco harm reduction.”

Contrasting Altria's valuation, Juul Chairman and CEO K.C. Crosthwaite said in an internal email to employees that an outside appraisal firm valued the company at roughly $10 billion.

The number represents a snapshot, he wrote in the email obtained by CSP, and Juul’s recent market exits and restructuring-related costs affected the third quarter. The company announced in September it would be making a significant reduction in force and explore exiting a variety of markets in Europe, the Middle East and Africa and Asia-Pacific. 

“Today’s valuation does not surprise me, and I expect other investors to also arrive at lower valuation marks that factor in our recent restructuring; however, I believe our future pathway is promising, and we are beginning to see positive signs,” Crosthwaite said.

Combined, the smokable and oral tobacco products grew for Altria, Richmond, Va., in the third quarter, Gifford said.

Many U.S. tobacco customers faced economic hardships this quarter as unemployment rates remain high due to COVID-19 and enhanced federal unemployment benefits expired at the end of July, Gifford said. Non-tobacco discretionary spending on item like gas and entertainment remains below pre-pandemic levels though, he said, which helps offset some of the economic headwinds consumers face.

Altria estimated the number of tobacco consumer trips to the store rebounded in the third quarter and tobacco expenditures per trip remained elevated versus the year-ago period. Stay-at-home practices also allow for more tobacco uses, Gifford said.

Bonnie Herzog, managing director at Goldman Sachs, New York, said in an analysis of Altria’s third-quarter results that she sees “more headwinds than tailwinds” heading into fiscal year 2021 including tough cigarette volume competition, greater potential excise tax increases post-election, increased flavor ban momentum and continued high unemployment and reduced consumer discretionary spending as COVID-19 restrictions lift.

Other takeaways Herzog noted included:

  • Cigarette volume growth was better than expected: Cigarette volumes were down 0.4% year-over-year and 1% year-over-year on an adjusted basis, compared to Goldman Sachs’ previous estimate of a 3.5% decrease; however, Altria’s cigarette volume performance was below industry levels, which were up 1% year-over-year on an adjusted basis, Herzog said.
  • Marlboro share remains steady: Marlboro’s retail market share is stable at 43.3%, but Herzog said she remains cautious as Altria remains challenged by secular declines in smoking and increased switching to non-combustible alternatives. The brand could also face increased pressure from downtrading given the high levels of unemployment.
  • Oral nicotine momentum builds:Altria continues to invest in On, which is now available in more than 56,000 retailers, compared to 28,000 in the first quarter of the year. It has achieved about 2% of retail share in the oral tobacco category.
  • Philip Morris expands iQOS: Altria started marketing iQOS and HeatSticks with a reduced exposure claim consistent with the U.S. Food and Drug Administration’s Modified Risk Tobacco Product designation approval.  Philip Morris, which is distributing the product, is expanding its availability in convenience stores, including in Charlotte, N.C., starting in November, Herzog said.

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