Altria and Philip Morris' stocks fall with BAT after news of huge write-down

By Ciara Linnane

The stocks of the two big U.S. tobacco companies were down more than 3% on Wednesday

Altria Group Inc. and Philip Morris International Inc. shares fell more than 3% Wednesday, caught up in the downdraft created by British American Tobacco's massive $31.5 billion write-down of its cigarette brands.

BAT's stock (UK:BATS) was down 10% in London after it announced the write-down, which covers its acquired U.S. combustibles brands, as it assesses their value over 30 years.

U.S. brands held include Camel and Newport. According to data from Calcbench, it's the largest write-down of a U.S.-listed company since AOL's $35.6 billion write-off in 2014.

The company told analysts on a call that its 2023 earnings per share will be in line with previous guidance on low-end organic revenue growth, and said its U.S. business next year will be hit by macroeconomic pressures on the combustibles market as well as competing demand from illicit disposable vape.

Chief Executive Tadeu Marroco repeatedly called for tougher Food and Drug Administration enforcement that he doesn't expect to occur.

See also: Organigram's stock soars as British American Tobacco invests $91.3 million

Altria's stock (MO) tumbled 3.2%, while Philip Morris (PM) was down 3.6%.

Jefferies analyst Owen Bennett said that while BAT's business is clearly under pressure, "post call there are reasons not to be too negative."

Bennett pointed to possible upside from the U.S. next year, and noted that both the vape & pouch businesses are profitable already, even with the disposable pressures on the former. Bennett said he believes that a plan to invest more in heated products is needed.

"We've said before, the focus on pricing vs below-the-line has been wrong," he wrote, referring to BAT's decision to go to market with a focus on pricing and not on spending on items such as consumer education.

"Philip Morris, by contrast, has been very much focused on the latter. BAT's approach works in a cigarette world, but not with RRP (reduced risk products), where education to drive conversion over trial is critical," said Bennett.

BAT also seems open to part of its stake in Imperial Tobacco Company of India, or ITC, which could free money up for share buybacks, said the analyst.

Jefferies has a buy rating on BAT's stock.

Altria's stock has fallen 10% in the year to date, while Philip Morris has fallen 11%. The S&P 500 SPX has gained 19%.

Read: Altria's adjusted earnings per share fall slightly short of estimates

-Ciara Linnane

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12-06-23 1041ET

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