RICHMOND, Va. – Despite income and volume declines during the past quarter, officials with Altria Group Inc. reported progress in the first half of 2018, pointing out an increase of 0.1 share point in its Marlboro brands to 43.2%.
In a quarterly investor call on July 26, Howard Willard, chairman and CEO of Richmond, Va.-based Altria Group, said the company's strategy for smokeable products was to maximize income while maintaining momentum for its Marlboro cigarettes and Black & Mild cigars. For its smokeable products, adjusted income declined 2.8% in the second quarter and 2.4% in the first half of 2018, “as expected, given our investments,” Willard said. “[The company] entered the year focused on stabilizing Marlboro with investments in product expansions, packaging innovations and brand equity.”
The company’s cigarette volumes declined an estimated 5% in the second quarter compared to an estimated industry decline of 3.5%. “This is consistent with our view that industry volume declines would moderate as the effects of the  California state excise tax were fully lapsed,” he said.
While industry performance may be volatile on a quarterly basis, Willard said the past four quarters have seen an overall rate of decline for the industry of about 4%, which is consistent with the historical long-term decline rate of 3% to 4%. “We believe the adult tobacco consumers’ economic situation remains positive, and we continue to closely watch the many economic factors, including gas prices and wage growth, that could affect their spending habits,” he said.
Here are other insights from the quarterly call …
Photo courtesy of Hans.
Marlboro Ice doing well
Elaborating on some of the investments Altria has made in the Marlboro brand, William Gifford, vice chairman and CFO of Altria Group, said that in the first quarter, Philip Morris USA, Altria’s U.S. cigarette unit, expanded its new menthol cigarette line, Marlboro Ice, nationally. “We’re encouraged by performance in the menthol segment,” Gifford said. “PM USA is pursuing options to adopt Marlboro Ice’s innovative resale pack on other offerings in its portfolio.”
Additionally, Gifford said that Marlboro’s Points West rewards program in Texas continued its early success by increasing Marlboro’s digital engagement with adult smokers. “Specifically, unique logins on Marlboro.com increased over 65% year over year in the state of Texas,” he said.
Superpremium cigarette, cigar expansion
In the superpremium tobacco segment, Altria’s Nat Sherman line of products continues to build awareness and trial in Colorado, with Gifford saying the company is pleased with its performance. “As a result, Nat Sherman expanded Nat’s into 13 additional states across the Western U.S. in mid-June,” Gifford said. “In cigars, the business continues to perform well, as reported shipment volume grew 2.7% in the second quarter and 2.8% for the first half of the year.”
Smokeless growth, but some declines
In the smokeless-products segment, Altria’s U.S. Smokeless Tobacco Co. (USSTC) delivered adjusted income growth of 3.5% in the second quarter and 13.5% in the first half of 2018. Copenhagen and Skoal combined gained 0.2 share point from the fourth quarter of 2017, Willard said.
As for volume, USSTC said that smokeless industry volume growth continues to be affected by adult tobacco consumers moving among tobacco product categories. USSTC estimates that over the past six months, the adjusted shipment volume for the smokeless-products segment declined an estimated 1.5%, and smokeless industry volume declined an estimated 1%.
Photo courtesy of Camp Lejeune.
In e-vapor, Nu Mark grew volume by approximately 16% in the quarter and 23% for the first half of the year, primarily driven by expanded distribution, Willard said. Most recently, Nu Mark expanded MarkTen Elite from more than 6,000 stores in the first quarter to more than 23,000 stores by the end of the second quarter.
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With regard to the company's heat-not-burn product, iQOS, Willard said that if and when the U.S. Food and Drug Administration (FDA) authorizes the marketing and sale of iQOS in the United States, PM USA can begin importing the product. “While this will create a two- to three-month period between FDA authorization and availability at retail, PM USA will take advantage of that time to activate its marketing plan, which will use a range of tools to build adult smoker awareness and demand in the lead market while gaining key insights for subsequent market expansion,” Willard said.
Photo courtesy of Phillip Morris International.