Altria Group Inc., the U.S. maker of Marlboro cigarettes, reported a US$4.5 billion charge related to its investment in Juul Labs Inc. as the nascent vaping market faces a reckoning.

  • Altria said the non-cash charge isn’t tied to a single event. Instead, it cited a slew of challenges: a high chance the U.S. Food & Drug Administration will remove flavored e-vapor products from the market, various bans already put in place by some cities and states and other factors.

Key Insights

  • The company reaffirmed its 2019 guidance based on its core tobacco business, though that forecast includes “little to no” contribution from its Cronos cannabis or Juul investments.
  • Altria’s 35 per cent stake in Juul, which it paid US$12.8 billion for late last year, is turning into a headache as the e-cigarette maker grapples with a rash of vaping-related illnesses and deaths. Pressure for a writedown intensified this week after Fidelity Investments slashed the value of its own stake in the e-cigarette maker by almost 50 per cent.
  • Juul is facing a wave of lawsuits and regulatory scrutiny, so the troubles may persist for Altria. A former Juul executive is accusing the company of intentionally selling contaminated nicotine pods and refusing to recall them, according to a lawsuit filed this week.
  • The vaping scare may be a double-edged sword, since the outbreak of illnesses may be pushing consumers back to regular cigarettes. Howard Willard, Altria’s chairman and chief executive officer, said Thursday that “our core tobacco businesses delivered excellent third-quarter financial results.”

Market Reaction

  • Altria shares were little changed in early trading on Thursday, rising slightly after the results were released. The stock has fallen 6.9 per cent so far this year, weighed down by increased regulatory action in the market for e-cigarettes.
  • Get more on the numbers here.