Altria Feels Impact of Smokeless Recall in Q1
RICHMOND, Va. — The impact of Altria Group Inc.'s February recall of smokeless tobacco products was felt in the company's first-quarter earnings results.
According to Marty Barrington, Altria's chairman, CEO and president, the smokeless product segment experienced "a disappointing quarter" as a result of U.S. Smokeless Tobacco Co.'s (USSTC) voluntary recall of certain smokeless tobacco products manufactured at its facility in Franklin Park, Ill. The recall included select cans from the Copenhagen, Husky, and Skoal brands.
As CSNews Online previously reported, the recall was triggered by eight consumer complaints of foreign metal objects, including sharp metal objects, found in select cans. In each case, the object was visible to the consumer and there have been no reports of consumer injury.
"USSTC did the right thing by moving quickly to address the issue with consumers, the trade and other stakeholders, but the recall's effect shows in the numbers," Barrington said during Altria's first-quarter earnings call May 2. "Smokeless segment adjusted operating company income declined 7.8 percent and USSTC estimates that the recall had an approximately 1.0 retail share point impact."
He added, "the recall is concluded and USSTC has now largely completed replenishing wholesale and retail inventories. We expect that USSTC will recover the share loss over time."
ALTRIA'S OTHER SEGMENTS
With the recall behind it, Altria is moving forward with positive results in its other tobacco segments.
Richmond-based Altria's wholly owned subsidiaries include Philip Morris USA Inc., U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Nu Mark LLC, Ste. Michelle Wine Estates Ltd., and Philip Morris Capital Corp. Altria also holds an equity investment in Anheuser-Busch InBev. The brand portfolios of Altria's tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, MarkTen, and Green Smoke.
"Altria is off to a solid start in 2017 despite some short-term headwinds," Barrington said. "We grew first-quarter adjusted diluted earnings per share (EPS) by 1.4 percent against a difficult comparison in the year-ago quarter when we grew adjusted diluted EPS more than 14 percent. The smokeable products segment continued to generate strong results, which offset lower equity earnings from our beer investment and the effect of the voluntary product recall in the smokeless products segment."
The company's "business fundamentals remain strong, and we believe we are well-positioned for the rest of the year," he continued.
The smokeable products segment grew its adjusted operating company income by more than 8 percent. Philip Morris USA Inc. (PM USA) estimates that cigarette industry volume declines were in line with the historical rate as the industry lapped the improving consumer conditions and benefits from lower gasoline prices, the chief executive explained.
"Against this backdrop, the industry remains competitive. PM USA saw several competitive product expansions and promotional changes; however, in this environment, PM USA remained focused on maximizing income while maintaining momentum on Marlboro across its measures of brand strength, which include equity, demographics, retail share and profitability," Barrington said.
Looking at the machine-made large cigar segment, John Middleton Co.'s focus on the tipped cigar segment "continued to generate good results and business is performing very well. The cigar category strength and trade inventory movements drove Middleton's reported shipment volume up over 12 percent in the quarter," the CEO added.
In innovative products, Nu Mark LLC expanded MarkTen to roughly 10,000 more stores and added three more flavors to the electronic cigarette line: Winter Mint, Summer Fusion and Smooth Cream.
"Altria continues to develop a portfolio of products to meet evolving adult tobacco consumer preferences," Barrington said.