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 The Marlboro maker in the United States said on Thursday the
fourth-quarter charge was mainly due to the increased number of
legal cases pending against Juul and the expectation that the number
would continue to grow.
Overall, Altria has recorded $8.6 billion in impairment charges
after it took a 35% stake in Juul for $12.8 billion in December
2018. Those charges brought down the value of its investment to $4.2
billion as of the end of 2019, Altria said.
"I'm highly disappointed in the financial performance of the Juul
investment," Altria Chief Executive Officer Howard Willard said on a
post-earnings call.
"(The valuation) is substantially below what we had expected."
Shares of Altria fell 6% in after the charges pushed the company to
post a fourth-quarter loss of $1.81 billion, compared with a profit
$1.25 billion a year earlier.
The company also said it does not expect to receive earnings
contributions from Juul over the next three years.
"It's a major black eye for the management. It's a major strategic
mistake in hindsight," CFRA Research analyst Garrett Nelson said.
With the Juul deal, Altria had set its sights on re-entering the
market for vaping in the face of declining smoking rates and
cigarette sales in the United States.
But a string of vaping-related deaths, coupled with increased bans
following a surge in teenage vaping, has clouded the prospects of
e-cigarette makers, including Juul.
E-cigarette companies are also facing a May deadline to submit
applications to the U.S. Food and Drug Administration, proving that
their products provide a net benefit to public health.
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If a company fails to make its case, the FDA has the power to order
its products off the market.
As part of the revised deal, Altria said it would continue to help
Juul with regulatory services including the submission of its
products for approval by the FDA.
"Right now, our primary focus is on helping Juul file a compelling
and complete PMTA (premarket tobacco product application)," Altria
CEO said.
Willard added he was "optimistic" that data from a federal youth
tobacco survey would be released before the FDA made its decision on
the applications and that it shows a reduction in youth usage of
e-vapor products.
Juul's new chief executive officer and former Altria executive, K.C.
Crosthwaite, has made the FDA application process his central goal
and restructured the company to focus on regulatory approval.
Altria will stop providing services including logistics,
distribution and access to retail shelf space to Juul, it said,
adding that the e-cigarette maker will rejig its board to include
two directors designated by Altria.
"This agreement is a continuation of the reset initiated by Juul's
leadership team," Willard said.
(Reporting by Aishwarya Venugopal, Manas Mishra and Praveen
Paramasivam in Bengaluru; Editing by Bernard Orr, Sweta Singh and
Anil D'Silva)
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