Altria stock craters after $4.1 billion hit from Juul investment, blames growing legal risk

Earnings

A person smokes a Juul Labs Inc. e-cigarette in this arranged photograph taken in the Brooklyn Borough of New York, U.S., on Thursday, Dec. 20, 2018. Altria Group’s plan to take a $12.8 billion stake in Juul Labs could be destroying value, Citigroup analysts write in a note downgrading the stock to a sell from neutral.

Gabby Jones | Bloomberg | Getty Images

Altria posted a loss Thursday as it took a $4.1 billion impairment charge for its investment in e-cigarette company Juul.

The Richmond, Virginia-based cigarette maker said the charge was due largely to the increased number of legal cases pending against Juul and the expectation that the number will grow.

Altria invested in Juul in December 2018, buying a 35% stake for $12.8 billion, as it looked for growth outside traditional cigarettes. Smoking rates have been declining.

Altria expects the U.S. cigarette industry volume to decline at an adjusted rate of 4% to 6% in 2020, the company said Thursday.

In all of 2019, Altria said it recorded $8.6 billion in noncash pretax impairment charges tied to its investment in Juul, which brings the value of its stake in Juul to $4.2 billion as of Dec. 31, 2019.

Altria and Juul have agreed to revised terms of Altria’s investment in the company, Altria said Thursday. Altria will continue to help Juul navigate regulatory affairs, which will include helping Juul apply for its premarket tobacco product applications.

But Altria will discontinue all other services by the end of March 2020 that were part of the original investment agreement.

Juul also agreed to restructure its board upon antitrust clearance from the Federal Trade Commission. And if Juul is prohibited by federal law from selling e-cigarette products in the U.S. for at least a year, or if Altria’s stake in Juul drops below 10% in value of its initial $12.8 billion investment, Altria has the option to be released from its non-compete.

“This agreement is a continuation of the reset initiated by JUUL’s leadership team,” Altria CEO Howard Willard said, in a press release. “We look forward to working with the company under this structure to support JUUL’s commitment to working with regulators and submitting the best possible PMTA.”

E-cigarette companies have been heavily scrutinized by health regulators. India, Thailand and China have imposed bans of varying degrees on vaping products amid rising fears about their safety and growing evidence that teen vaping is on the rise. 

This is breaking news. Please check back for updates.

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