Big tobacco continues to tank and it desperately pivots
into the vape world in a probably feeble attempt to keep it's shirt. It’s pretty obvious why Altria felt the need for a piece of e-cigarette maker Juul Labs. They tried to kill vaping, they tried to kill eLiquids, then they just gave up and bought in, because they finally saw the numbers on the wall.
Now the the tobacco giant is seeing some other disturbing numbers, like their shipment volume has been falling for some time, as these latest figures show a business decaying faster than investors even previously predicted. Altria saw cigarette volume drop more than 14% to start the year, marking the company’s largest decline in at least three years.
Even after adjusting for factors like trade inventory movements, volume still dropped 7% for the worst adjusted decline in a year. In all, the shipment numbers were “much worse than feared,” wrote Wells Fargo’s Bonnie Herzog. Oh no, we backed a company that sells products that kill people for our own financial gain and it turns out that was a losing bet - she probably also thought in retrospect.
Altria has been jacking up cigarette prices to compensate for these declines, instituting a massive hike in February. While cigarette makers generally have strong pricing power, it remains to be seen just how often companies like Altria can get away with pulling this lever to mask demand issues. Addiction is a heck of a thing, but there is a price point where people will actually change their habits.
Management remained upbeat about tobacco trends on Altria’s earnings call, with Chief Financial Officer William Gifford saying that combustible and smokeless tobacco were still performing well and that the Marlboro brand continues to be “strong and relevant.”
I don't doubt their branding is strong, but relevant is highly suspect. We live in the era of the vape and the future is now old man. What do you think about these latest earnings and shipping numbers? Is big tobacco doomed? Can they cleverly pivot into some market that will keep them alive?
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Josh
June 23, 2019
Unfortunately, big tobacco and American tobacco companies are making more money than ever selling overseas. China has as many smokers as there are people in the United States, and many African nations are seeing epidemic levels of smoking as popularity increases. Unregulated marketing practices and attractive packing helps pull undereducated people in many impoverished nations into the fold. While smoking may be down in many traditional countries, it is stronger than ever outside of the US and Europe.