Altria makes fresh bet on vaping as it tries to move beyond Juul loss

Altria’s plan to come back from its disastrous $12.8bn investment in Juul is drawing it into a head to head fight for the US smokeless tobacco market with Philip Morris International, the former sister company it tried to recombine with four years ago.

The owner of the Marlboro brand in the US unveiled a new line-up of alternatives to the cigarettes which still account for 90 per cent of its sales at an investor day on Thursday, setting a goal of doubling revenues from smoke-free products to $5bn by 2028.

That portfolio, including On! oral nicotine pouches and a new device called Swic that heats tobacco capsules, will compete with PMI products Zyn, which was developed by recently acquired Swedish Match, and IQOS, the heated tobacco sticks which are expected to launch in the US in 2024.* Smoke-free products delivered 32.1 per cent of PMI’s revenues last year.

Billy Gifford, Altria’s chief executive officer, said in an interview that he expected PMI to be a tougher rival than others but added that the company was confident of retaining its lead in the US market.

“Will they be slightly better than Swedish Match? Probably so. But we’re used to competition,” he said, citing Altria’s strong relationships with retailers and distributors.

Earlier this month Altria paid $2.75bn to buy NJOY, an e-cigarette start-up, in its latest bet on the vaping market after losing almost all of the $12.8bn it invested in Juul five years earlier. The US group wrote down the value of its 35 per cent stake in Juul to just $250mn before swapping it for intellectual property rights to some of Juul’s heated tobacco prototypes.

Altria had “certainly had lack of success” with Juul, Gifford admitted, blaming its failure on “chasing the market” rather than listening to consumers. With its new products, he said, “we’re going to be led by the consumer”. It would own 100 per cent of NJOY, he added, and could improve its distribution.

Sal Mancuso, chief financial officer, said Altria could offset about half of its $12.5bn loss on the Juul investment against future capital gains taxes. Analysts argue that this may hasten a sale of Altria’s 10 per cent stake in AB InBev, the world’s largest brewer.

“Our focus is on maximising that investment for our shareholders over the long term,” Mancuso said, but Altria would weigh tax considerations alongside other factors such as potential uses of the sale proceeds.

Alternatives to cigarettes have taken off more slowly in the US than in Europe, but Gifford rejected the suggestion that Altria had been insufficiently aggressive in promoting smoke-free products. Instead, he portrayed this as the result of a slow regulatory process at the US Food and Drug Administration.

“The rigour of the FDA and the regulatory process in the US is much greater” than elsewhere, he said. That had advantages in reassuring consumers that decisions were based on science, he added, but “we’ve been disappointed with the slow pace” with which the agency has approved smoke-free products.

“We need clear pathways to be able to bring these products to the marketplace,” he argued, and better enforcement to prevent sales of banned nicotine products.

At the same time, he rejected calls for broader-based bans. “Prohibition doesn’t work,” he said, arguing that regulation could “move the consumer down the continuum of harm versus forcing [smokers] to . . . a black market”.

The former Philip Morris rebranded as Altria in 2003 and spun out its international operations as PMI in 2008. The two companies discussed a possible $200bn merger in 2019 but PMI’s shares have since outperformed Altria, giving it an equity value on Friday of $140bn compared to Altria’s $78bn valuation.

*This story has been amended to clarify which capsules Swic uses