Altria inks new deal on heated cigarettes as sales slide
Oct 26, 2022, 5:20 PM | Updated: Oct 27, 2022, 7:53 am
FILE- This June 14, 2018, file photo shows cartons of Marlboro cigarettes on the shelves at JR outlet in Burlington, N.C. Tobacco companies like Altria have shifted toward lower-risk products but still rely on cigarettes to drive sales with users typically less likely to stop using them despite the rising cost of a pack. However, skyrocketing prices for everything from gasoline to rent and food are testing even those customers. (AP Photo/Gerry Broome, File)
(AP Photo/Gerry Broome, File)
WASHINGTON (AP) — Marlboro-maker Altria has a new partner in its effort to bring a heat-not-burn cigarette to the U.S. market, one week after exiting a similar deal with its sister company, Philip Morris International.
Altria said Thursday it’s launching a new venture with Japan Tobacco to commercialize cigarette alternatives developed by both companies for U.S. smokers. The partnership’s first effort will be to win U.S. regulatory approval for Japan Tobacco’s Ploom, a small handheld device that heats tobacco without burning it.
Altria, based in Richmond, Virginia, made the announcement as it reported third-quarter earnings that missed Wall Street estimates, with cigarette sales pressured by higher gas prices and inflation.
Ploom and other heat-based products can appeal to smokers who “have not yet found a satisfying alternative to cigarettes,” Altria CEO Billy Gifford said Thursday. “This audience includes the millions of U.S. adult smokers who tried, but ultimately rejected, e-vapor products.”
Altria is making an initial $150 million investment in the partnership, which will do business in the U.S. as Horizons Innovations.
The deal with Japan Tobacco comes after Altria said it will sell its rights to IQOS — currently the only heated tobacco product permitted in the U.S. — back to manufacturer Philip Morris International for $2.7 billion. Altria spun off Philip Morris into a separate international company in 2008.
IQOS has made inroads in Japan, Europe and other regions but has had minimal impact in the U.S. Under regulatory scrutiny, Altria and Philip Morris confined sales to specialty stores and kiosks in a handful of U.S. cities.
For years Altria has emphasized its efforts to shift its business away from cigarettes amid steady declines in smoking. The company’s recent marketing and ads feature the tag line “moving beyond smoking.” But cigarettes still account for the vast majority of company sales and efforts to branch out into vaping and other alternatives have mostly flopped.
Altria pulled its own e-cigarettes off the market in 2018 after taking a nearly $13 billion stake in Juul, then the leader in the multibillion-dollar U.S. vaping space. But that investment has lost more than 95% of its value as Juul’s prospects have dimmed. That’s recently given Altria the option to exit its non-compete agreement and relaunch or partner with other companies on e-cigarettes.
In June, U.S. regulators formally rejected Juul’s application to continue selling its e-cigarettes as a less-harmful alternative for adult smokers. Juul is appealing that decision. The company also faces thousands of personal injury and local government lawsuits alleging the company’s high-nicotine products and flavors hooked teens on nicotine.
In the latest quarter Altria took another $100 million write down on its Juul investment.
The company reported net income and sales that were pressured by rising prices and tighter spending by smokers. Company executives said higher wages and a strong job market partially offset some of the impact of inflation.
Altria said its third-quarter net income swung to $224 million, or 12 cents per share, after reporting a loss in the same period a year earlier.
Earnings, adjusted for non-recurring costs, were $1.28 per share, missing analyst expectations The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of $1.31 per share.
The owner of Philip Morris USA, Altria posted revenue of $6.55 billion in the period. Its adjusted revenue fell 2% to $5.41 billion, also missing Street forecasts. Four analysts surveyed by Zacks expected $5.62 billion.
Altria narrowed its full-year earnings to the range of $4.81 to $4.89 per share.
Company shares were up less than 1% in trading Thursday morning.
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