On May 28, CNBC reported that data collected by Nielsen indicated a decline of 6.9% in cigarette sales by value and an 11.2% decline by volume during the four weeks ended on May 18. The decrease in volumes was sharper than Altria Group’s forecast of 4% to 5%, which has resulted in a fall in tobacco stocks. On May 28, Altria Group (MO) fell 4.8%, while British American Tobacco (BTI) fell 4.1%. The weakness in the tobacco sector also led the stock price of Philip Morris International (PM), which markets its tobacco products outside of the US, to fall 3.7% on the day.
Nielsen’s data, which was included in the research note of Bonnie Herzog of Wells Fargo, indicated a surge in e-cigarette sales. The category reported an increase of 46.4% in the most recent period. The report also noted that Juul captured 74.5% of sales at stores that were tracked by Nielsen. Altria, which had invested $12.8 billion in Juul for a 35% stake, had estimated the market share of Juul to be at 40%.
Although Juul’s sales are rising, it can’t offset the losses incurred by Altria due to the shrinking of its core business. In an interview, Cowen analyst Vivien Azer stated, “For every pack of Marlboro that converts to Juul pods, Altria loses 100% of Marlboro and gains 35% of the Juul pod. There’s no way the math is possible for that to be a perfect offset,” as reported by CNBC.
After yesterday’s decline, Altria’s returns for the year fell to just 1.0%. However, peers British American Tobacco (BTI) and Philip Morris International (PM) have returned 22.2% and 14.0%, YTD, respectively. Also, the Consumer Staples Select Sector SPDR Fund (XLP), which invests ~7.9% of its holdings in cigarette and tobacco companies, has returned 11.4% during the same period.