Altria's Juul Gamble: Write-Off Or Write A New Chapter?

In 2018, tobacco giant Altria invested $12.8 billion in e-cigarette company Juul, acquiring a 35% stake. However, Juul soon became embroiled in controversy, facing lawsuits and scrutiny over a surge in teen vaping and vaping-related illnesses and deaths. As a result, Altria has had to write down its investment in Juul multiple times, with the value of its stake declining significantly. By the end of 2022, Altria's $13 billion investment in Juul had lost 95% of its value, leading to a substantial financial hit for the tobacco company.

Altria's $13 billion Juul investment lost 95% of its value

Altria's $13 billion investment in Juul has lost 95% of its value, with the tobacco giant's stake in the e-cigarette maker now worth less than $500 million. The decline comes as U.S. regulators move to ban Juul's vaping devices, citing concerns about harmful chemicals and underage use among teenagers. Altria, the nation's largest cigarette maker, has been attempting to diversify its product offerings into vaping and nicotine pouches as traditional tobacco use continues to decline.

Altria's investment in Juul dates back to 2018 when the company signed a $12.8 billion pact, acquiring a 35% stake in the vaping company. The decision was driven by the popularity of Juul's vaping devices and the potential to tap into a lucrative alternative to tobacco products. However, Juul has faced mounting litigation and scrutiny over the years, with a surge in teen vaping and concerns about harmful chemicals in its nicotine formula.

In response to the declining value of its investment, Altria has slashed the value of its Juul stake by more than $1.1 billion, reporting a new valuation of $450 million in the second quarter of 2022. Despite the losses, Altria has maintained its commitment to the investment deal with Juul, including an agreement not to sell competing vaping products. Altria CEO Billy Gifford stated that they believe the "right decision currently is to stay under the non-compete."

The financial impact of the declining investment value has contributed to a nearly 60% drop in Altria's quarterly earnings, with a reported drop of 49 cents per share. Excluding Juul and other one-time expenses, the company's adjusted earnings were $1.26 per share, slightly ahead of Wall Street estimates. Net revenue also slid by nearly 6% to $6.5 billion, attributed to lower sales of cigarettes and other core company products.

Altria's investment in Juul has faced challenges due to regulatory scrutiny, public health concerns, and lawsuits related to marketing practices and underage vaping. The company has revised its agreement with Juul, discontinuing certain services while continuing to help navigate regulatory affairs and apply for premarket tobacco product applications.

Altria's stock craters after a $4.1 billion hit from Juul investment

Altria's stock took a hit after the tobacco giant wrote down its investment in Juul Labs for a second time, with its stake taking a $4.1 billion hit amid mounting litigation against the e-cigarette maker. Altria blamed growing legal risk, citing an increased number of legal cases pending against Juul and the expectation that the number would continue to grow.

Altria's writedown on its investment in Juul comes amid public health concerns about a mysterious vaping illness that has caused 60 deaths across the U.S. and hospitalized 2,711 people as of Jan. 21, 2020. While these illnesses were not directly tied to Juul, they have heightened public concern about vaping in general. Juul has faced lawsuits tied to its marketing practices, and its flavored pods have been banned in several markets amid concerns that they were coaxing teens to vape, which could cause a new generation to become addicted to nicotine.

Altria invested $12.8 billion in Juul in December 2018, acquiring a 35% stake, as it looked to expand beyond traditional cigarettes. In its fourth quarter, Altria swung to a loss of $1.81 billion, or $1 a share, from net income of $1.25 billion, or 66 cents a share, a year earlier. Excluding the impairment charge, Altria earned $1.02 per share, in line with Wall Street estimates. Sales of $4.80 billion, however, fell short of analyst expectations of $4.88 billion.

Altria's CEO Howard Willard said, "Despite the unexpected challenges related to our investment in JUUL, which led to impairment charges and reported losses, we made significant progress advancing and building our noncombustible business platform with the launch of IQOS and completion of the on! transaction. We believe Altria's enhanced business platform best positions us to succeed under various future category scenarios."

Altria's writedown on its investment in Juul amid public health concerns

Altria has written down its investment in Juul by more than a third, recording a $4.5 billion pretax charge against its third-quarter earnings in 2019. The tobacco giant invested $12.8 billion for a 35% stake in the e-cigarette maker in 2018, valuing the company at $38 billion.

The write-down was due to a number of factors, including the Trump administration's plans to remove flavored e-cigarettes from the market, e-cigarette bans by cities and states across the U.S. and in several countries, and the outbreak of vaping-related lung disease. Juul has also faced lawsuits over its marketing practices and has been blamed for fueling an epidemic of teen vaping.

Altria CEO Howard Willard said the company did not anticipate the "dramatic" regulatory changes and that they remained committed to Juul's success. Despite the writedown, Altria maintained its investment deal with Juul, including an agreement not to sell competing vaping products.

In 2020, Altria took another $4 billion charge on its investment in Juul, citing the increased number of legal cases against the e-cigarette maker and the expectation that this number would continue to grow. The company also said it did not expect to receive earnings contributions from Juul over the next three years. As a result, Altria cut its long-term earnings per share growth targets for 2020 to 2022.

By 2022, Altria's $13 billion investment in Juul had lost 95% of its value as U.S. regulators moved to ban the company's e-cigarettes. Altria slashed the value of its investment by more than $1.1 billion, pegging its new value at $450 million. Despite this, Altria continued to maintain its investment deal with Juul.

Altria takes a $4 billion charge on its investment in Juul

Altria Group Inc. has taken a $4 billion charge on its investment in Juul Labs Inc. The tobacco giant has also slashed the value of its investment in the e-cigarette maker and stripped down its agreement to provide services to the startup as it faces mounting scrutiny of the e-cigarette market.

Altria invested $12.8 billion for a 35% stake in Juul in December 2018, valuing the company at $38 billion. However, in the face of declining smoking rates and cigarette sales in the United States, Altria had set its sights on re-entering the market for vaping.

Juul has been embroiled in controversy and is the subject of numerous lawsuits claiming the company misled minors and addicted them to nicotine, as well as federal investigations into the company's marketing practices. The company is largely blamed for fueling an epidemic of teen vaping.

The write-down drove the company's net income down by about $2.41 a share. On an unadjusted basis, Altria booked a $2.6 billion loss for the quarter, or a loss of $1.39 a share, compared with a profit of $1.94 billion, or $1.03 a share, during the same time last year.

Altria's CEO Howard Willard said that the company did not anticipate such a dramatic change in the e-vapor category and that they are disappointed in the financial performance of the Juul investment.

Altria's $12.8 billion investment in Juul amid regulatory and financial pressures

Altria's $12.8 billion investment in Juul has faced significant challenges amid regulatory and financial pressures. In 2018, Altria, the nation's leading tobacco company, acquired a 35% stake in Juul Labs, valuing the e-cigarette maker at $38 billion. However, this investment has been fraught with controversy and financial losses.

One of the main challenges has been the public health concerns and regulatory scrutiny surrounding vaping, particularly the impact on youth. Juul has faced lawsuits and scrutiny over a surge in teen vaping, with critics arguing that the company's marketing practices and flavored pods coaxed teens into vaping, potentially causing a new generation to become addicted to nicotine. In response, Juul has discontinued most of its flavors and rebranded itself as a product for adult smokers.

The regulatory landscape has also been challenging for Juul. The U.S. Food and Drug Administration (FDA) has taken a tough stance on e-cigarettes, with bans on flavored vaping products and plans to remove them from the market. Additionally, the FDA's decision to ban Juul's small cartridge-based e-cigarettes due to concerns over potentially harmful chemicals further impacted the company's prospects. These regulatory actions have contributed to the decline in value of Altria's investment.

Financial pressures have also mounted for Altria and Juul. Altria has recorded significant losses related to its investment in Juul, including a $4.5 billion write-down in 2019 and subsequent adjustments to the value of its stake. By July 2022, Altria's $13 billion investment in Juul was worth less than 5% of its original value. The financial hit from Juul contributed to a nearly 60% drop in Altria's quarterly earnings.

Despite these challenges, Altria has maintained its investment deal with Juul, expressing its commitment to Juul's success and believing that the investment rights are still beneficial. Altria has also launched its own alternative smoking devices, such as Iqos, which heats tobacco without burning it, to provide adult smokers with alternatives to traditional cigarettes.

Frequently asked questions