Altria Discounts Cronos Group Investment By 20%

Altria Group (NYSE: MO) reported its third-quarter earnings as regular smokers seem to be holding steady, but its stake in the vape company Juul Labs and cannabis company Cronos Group (CRON) didn’t fare as well.

Altria took another massive writedown on its investment in Jull Labs. The original 38% stake in the e-cigarette company was $12.8 billion it has now been marked down to just $1.6 billion. That’s a drop of 88% devaluation. On top of all that, Altria wrote off another $2.6 billion and took $1.40 per share in charges to earnings.

With regards to Cronos, the company has this to say in its filing:

Altria has considered the impact of COVID-19 on the business of Cronos, including its sales, distribution, operations, supply chain and liquidity. Cronos continues to be impacted by COVID-19, due in part to government action requiring closures or limited occupancy of retail stores in the United States. During the second quarter of 2020, Cronos recorded an impairment charge on goodwill and intangible assets as a result of the impact of COVID-19 (which Altria recorded in the third quarter of 2020 due to its one-quarter lag in reporting Cronos’s results). In addition, the fair value of Altria’s investment in Cronos was approximately 20% less than its carrying value of $1.0 billion at September 30, 2020. While Altria believes that this decline in fair value is temporary, it will continue to monitor its investment in Cronos, including the impact of COVID-19 on Cronos’s business and market valuation.

 

The company reported the loss on the Cronos financial instruments for the quarter was $105 million, for the past nine months $202 million. For the last 12 months ending in September, Altria reported a loss on Cronos-related financial instruments of $317 million.

“Altria continued to demonstrate its resilience during the third quarter while navigating the challenges presented by the COVID-19 pandemic,” said Billy Gifford, Altria’s Chief Executive Officer. “In the third quarter, our tobacco businesses delivered strong financial performance once again and we continued to make progress against our 10-year Vision.”

Altria gave the following guidance:

Altria narrows its 2020 full-year adjusted diluted earnings guidance based on year-to-date performance and insight into an additional quarter of ABI earnings contributions. Altria now expects its 2020 full-year adjusted diluted EPS to be in a range of $4.30 to $4.38, representing a growth rate of 2% to 4% from an adjusted diluted EPS base of $4.21 in 2019. Altria also narrows its expectation for its 2020 full-year adjusted effective tax rate to be in a range of 24.5% to 25.5%.
 
While the 2020 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions for ATCs, including unemployment rates, disposable income (which may be impacted by potential future changes in government stimulus and federal unemployment benefit payments), mobility and purchasing behaviors.
 
Altria revises its estimates for 2020 full-year domestic cigarette industry volumes to be in a range of unchanged versus the prior year to down 1.5% based on better year-to-date industry performance and expectations for continued category resilience. This range replaces Altria’s previous estimates of down 2% to 3.5% versus the prior year.

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