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MO reports first quarter 2021 earningsMO reported first quarter 2021 EPS of $1.07, which was down 2 cents (or 1.8%) from last year's first quarter of $1.09. They held to their full year forecast of 3-6% EPS growth, or $4.49 to $4.62 per share. Excluded from those adjusted results are a net $0.30 per share is losses from special items, most notably $0.27 per share for the debt refinancing they did. They also wrote JUUL back down by $200 million, driven by market share losses, leaving it on their books now at $1.5 billion. Despite EPS being slightly down year over year, results were decent and carried over previous trends, with the slight EPS decline largely caused by wholesale inventory reductions in cigarettes, plus one less shipping day in 2021, due to 2020 being a leap year. Industry wide cigarette volumes were again largely flat, instead of their normal 3.5% decline, driven by people having more opportunity to smoke while working from home. MO regained share in Marlboro, but slightly lost some share overall due to losses in their discount brands. MO's cigar business, John Middleton, again showed strong volume growth of over 11%. The oral nicotine category also grew by 5%, but nearly all the growth is from the new pouch products, not the traditional moist snuff. So MO only gained a fraction of that growth due to them still playing catching up in the pouch segment. MO announced they did acquire the remaining 20% of "on!" that they did already own, and they remain on track to eliminate all their manufacturing volume constraints by mid year. After a steep decline in 2020. vaping grew in the first quarter, up over 5% versus last year. However, JUUL lost market share ending the quarter at 33%. The proposed menthol ban was released by the FDA during the call, so management hadn't read it yet. However, they repeated what they have said before. It will likely take a couple years to implement, assuming they follow the current rules. MO supports the move to RRP's, but opposes the ban on menthol. They believe the science behind a menthol ban is lacking, & outright prohibition results in unwanted situations, such as illegal/illicit activity. That said, MO is heavily underweighted in the menthol segment in the US, with only about 17% of their sales being menthol. That compares to about 55% for BAT (mosting the Newport brand), and over 30% for Imperial (KOOL and other discount brands). As such, it is hard to say what a menthol ban would even do to MO, given that they might actually gain share having the dominant non-menthol brand in Marlboro. More negative for MO, is that the FDA also announced they would pursue a ban of all flavors, including menthol, for cigars. Middleton's cigars contain a large majority of various flavors, so a complete ban there would be very significant to that division. Interestingly, I don't think the FDA said anything about banning menthol in heated tobacco units like IQOS HEETS, which is currently authorized to sell two menthol variants. They also didn't say anything about menthol in vaping either, which remains the one flavor allowed. |
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