Altria Group Inc. (MO.N), the seller of Marlboros in the U.S. market, managed to halt in the precipitous decline of cigarette shipment volumes in the second quarter, but the shares fell as investors saw the result as a blip in the broader downward trend.

Cigarette volume increased by 0.3 per cent, Altria said, in spite of steady declines in U.S. smoking rates and new obstacles to the tobacco industry. Still, that number was propped up by inventory movements, and factoring that out, volumes fell by an estimated 7 per cent.

Key Insights

The pressure remains high for Altria to find new revenue sources from cannabis, vaping and alternative nicotine products. The details of these new businesses were not outlined in the company’s second quarter results, but Chief Executive Howard Willard said that Altria is “best positioned among tobacco peers” because of its rights to the IQOS device and investments in Juul and On!, a nicotine patch.

Altria sees U.S. sales of IQOS beginning in September. The cigarette alternative developed by Philip Morris International Inc. was approved for sale in the U.S. by the FDA in April. Success there could help to alleviate the growing pressure on Juul, which received a US$12.8 billion investmentfrom Altria late last year and has been coming under increased scrutiny for its popularity with youth.

Despite new obstacles materializing -- such as an increase in the legal age to purchase tobacco products for more than 50 per cent of the U.S. population -- the company managed to increase its revenue. Excluding excise taxes, sales totaled US$5.2 billion, higher than the average of estimates compiled by Bloomberg.

Altria also changed its broader outlook for the cigarette industry, changing its forecast for annual declines through 2023 to four per cent to 6 per cent. That’s a degree worse than the previous range of 4 per cent to 5 per cent.

Market Reaction

The shares fell as much as 5.9 per cent in New York trading on Tuesday. The decline erased the stock’s gain in 2019.