Altria shares slid Tuesday as the tobacco company warned that cigarette sales declines are accelerating and it's "too soon" to judge Juul's international expansion, a key piece of Altria's nearly $13 billion bet on the e-cigarette giant.
Cigarette sales have been declining for years, though they've started falling faster than usual, forcing the maker of Marlboros to search for growth in new products like e-cigarettes, oral nicotine pouches and cannabis.
Altria late last year invested $12.8 billion for a 35% stake in Juul, a start-up that dominated the e-cigarette category within a few years of entering the market but faces intense scrutiny for its popularity among teenagers. Critics have worried from the beginning that Altria paid too much for too little. Those concerns were raised again Tuesday as analysts pressed Altria executives on a call reviewing the company's second-quarter earnings results.
Altria expects cigarette volumes in the U.S. to decline by 5% to 6% this year, which the company attributes to cigarette smokers switching to e-cigarettes. Altria has now revised the estimate twice this year. The company initially forecast volumes to fall by 3.5% to 5%.
Looking ahead, Altria said it expects total domestic cigarette industry volumes to decline to 4% to 6% through 2023, up from the previously forecast range of 4% to 5%. Altria attributed this partly to 18 states hiking the smoking age to 21. Lawmakers are also considering raising the federal tobacco buying age.
Critics of Altria's investment in Juul worry that its success comes at Altria's detriment in the U.S. since people might stop buying Marlboro — the largest cigarette brand in the U.S. — or Altria's other cigarette brands. Altria has pinned its hopes on Juul's growth overseas, though Altria CEO Howard Willard said it's "too soon" to judge the results. Altria has not yet reported Juul's financials in its earnings report because the deal is still undergoing regulatory review.
"There is still a bit of investment spending mode, both domestically and overseas, and I think it's simply too soon to make a judgment on the progress they're making overseas," he said. "That's more of early days there."
Shares of the company fell more than 5% Tuesday before paring back losses. The company's shares closed down 3.6% to $48.50.
Altria has spent the past year trying to diversify its portfolio as cigarette sales decline. Beyond its stake in Juul, Altria invested $1.8 billion late last year for a 45% stake in Canadian cannabis company Cronos. Earlier this summer, it spent $372 million for oral nicotine pouch brand On.
Altria will also start selling iQOS, a heated tobacco product, in the U.S. this summer. Philip Morris International sells the device overseas and will license it to Altria. The U.S. Food and Drug Administration cleared iQOS earlier this year.
Willard said the company will open an iQOS store in Atlanta in September. IQOS will be available in about 500 stores in the Atlanta area, the designated launch market. Willard said consumers can preorder iQOS online starting in August.
"The dynamics during the first half of the year further validate our strategy," Willard told analysts. "With increasing success migrating adult smokes to noncombustible products, we're pleased that our strong core businesses are well positioned to provide profit growth through this transition."
Willard said Altria estimates that Juul now represents 48% of the U.S. e-cigarette market, up from 44% at the end of the first quarter. He applauded the company pulling its fruity flavors from stores amid pressure from the FDA last fall and lobbying to raise the smoking age to 21.
Juul's actions haven't appeased critics who blame it for fueling a teen vaping "epidemic." A House oversight subcommittee last week grilled Juul executives over the company's marketing, with some lawmakers accusing Juul of targeting kids.
Juul will need to submit its e-cigarettes for FDA review next year, about two years earlier than the industry anticipated. The FDA's review process calls for the agency to weigh the net public health benefit — meaning it needs to weigh how many adults will benefit from the product versus how many teens might be harmed — when deciding whether to allow products to stay on the market.
Willard said Juul has invested "significant resources" into preparing its submission and Altria is advising Juul.
"I think they have very good science and evidence to support their application, but there's no doubt the shortened timeline presents an increased challenge for everybody," Willard said.
Altria reported second-quarter net income of nearly $2 billion, or $1.07 per share, up from from $1.88 billion, or 99 cents per share a year earlier. Excluding special items, such as health litigation, costs associated with Altria's investment in Anheuser-Busch InBev and its stake in Cronos, Altria earned $1.10 per share. Analysts surveyed by Refinitiv expected $1.11 per share.
Sales rose 5.5% to $5.19 billion, beating Wall Street's expectations of $5.09 billion.
Altria bought 3.7 million of its shares in the quarter, completing a $2 billion buyback. The company said its board of directors authorized a new $1 billion buyback on Monday.
The company affirmed its full-year forecast of adjusted earnings in the range of $4.15 to $4.27, while tweaking its volume expectations.
Cigarette volumes were essentially flat in the quarter. Marlboro held its market share at about 43%, Altria said.