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Tobacco giant Altria Group (NYSE: MO) last week, and most investors were not too happy with what they saw. Between falling income and net income, plunging cigarette shipment volumes, and a reduced dividend from its major investment in beer maker Anheuser-Busch InBevAltria did not get off to the start of the year.
One way that Altria investors hope the tobacco king will recover from its growth is through its recent investments beyond the cigarette industry. In particular, Altria's $ 1.8 billion investment in Cronos Group (NASDAQ: CRON) added marijuana to the mix, with all the growth potential that budding market brings to the table. In their most recent quarterly discussion with shareholders, Altria CEO Howard Willard and his fellow executives did not have a lot to say about its marijuana strategy, instead preferring to talk about what's happening with its core tobacco businesses. Here are some of the key points that Willard made about Altria's overall product vision.
Image source: Getty Images.
1. Let Cronos handle cannabis
As you know, we have recently closed the deal with Cronos, and through our board representation, we are greatly exposed to their ideas and their future development. … We have obviously been thinking about how to think about Cronos. I am not going to have anything to talk about today, but I am in the process of making the investment in the future. out our leadership position.
– Willard
Analysts pressed Altria for details on what Cronos Group's strategy will be, especially in light of Cronos' rivals to build up exposure to the U.S. market through strategic acquisitions and production facility announcements. Willard does not see any need to front-run Cronos' developments, remaining confident that Altria 's presence on Cronos' board will ensure future input from the future. Willard did promise, though, to have more to say in the next year or two about marijuana and Altria's role in the industry.
2. JUUL does not seem to be cannibalizing Marlboro
We have not detected any specific impact of JUUL on Marlboro. I would say that we are growing more and more in the marketplace, and we have a specific impact on our brands.
– Willard
The other, much bigger strategic move Altria recently made its investment in giant e-cigarette JUUL Labs, which gives the biggest prize to the leading player in the category. Altria has a hedge against declining cigarette use, which showed up dramatically in this quarter's 14% drop in cigarette shipment volume. Altria does not attribute its Marlboro decline directly to JUUL, but Willard did say that he expects the financial contribution from JUUL to gain in significance in the years to come.
3. Picking alternative cigarettes is a customer choice
With regard to IQOS versus JUUL, I think we are going to believe that the consumer is going to decide which product is most appealing to them. It would not be a problem for me if there were some consumers actually in the process of making a choice between the two.
– Willard
Amid its wide-ranging strategy, Altria is also waiting to see if the U.S. Food and Drug Administration will let it sell Philip Morris International's (NYSE: PM) IQOS heated-tobacco system in the U.S. market. With exclusive U.S. licensing rights, Altria could see a big benefit from having access to IQOS, even though it arguably will go up squarely against JUUL. Willard's approach to the cannibalization question is a reasonable one, and in the long run, Altria just wants to make sure that it's involved in any of its consumers end up wanting to use.
Look for Altria to bounce back
Altria shareholders have not had a good relationship with the company. However, with the help of multiple initiatives to increase growth, Altria has a lot of help in finding the most important challenges and long-term growth trajectory.
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