Tobacco giant Altria Group (NYSE: MO) announced its first-quarter financial results last week, and most investors weren’t too happy with what they saw. Between falling revenue and net income, plunging cigarette shipment volumes, and a reduced dividend from its major investment in beer maker Anheuser-Busch InBev, Altria didn’t get off to the strong start to 2019 that it had wanted to see.
One way that Altria investors hope that the tobacco king will recover from its growth woes 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 didn’t 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.
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1. Let Cronos handle cannabis
Analysts pressed Altria for details on what Cronos Group’s strategy will be, especially in light of moves from Cronos’ rivals to build up exposure to the U.S. market through strategic acquisitions and production facility announcements. Willard doesn’t see any need to front-run Cronos’ developments, remaining confident that Altria’s presence on Cronos’ board will ensure appropriate input from the tobacco giant on the cannabis company’s future moves. 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 doesn’t seem to be cannibalizing Marlboro
The other, much bigger strategic move Altria recently made was its investment in e-cigarette giant JUUL Labs, which gave the tobacco giant exposure to the leading player in the category. Some have argued that buying a stake in JUUL effectively gives Altria a hedge against declining cigarette use, which showed up dramatically in this quarter’s 14% drop in cigarette shipment volume. Altria doesn’t 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 cigarette alternatives is a customer choice
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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 whatever products its consumers end up wanting to use.
Look for Altria to bounce back
Altria shareholders haven’t been entirely happy with the setbacks that the tobacco company has seen in recent months. However, with the help of multiple initiatives to bolster growth, Altria has a lot of irons in the fire to help it recover from its latest challenges and regain a long-term growth trajectory.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.
