Altria Group CEO to Retire as Tobacco Giant Faces Crossroads

(Bloomberg) -- Altria Group Inc. Chief Executive Officer Marty Barrington is stepping down this year, tasking his top deputy with steering the Marlboro maker through one of the most difficult transitions in tobacco-industry history.

Barrington, who turns 65 this year, will retire in May after six years as chairman and CEO, Altria said on Thursday. Howard Willard, a 54-year-old who currently serves as chief operating officer, will then take the helm.

“Howard has been essential to that team and is immensely qualified and ready to take Altria forward when I step away in May,” Barrington said in the statement.

Willard has his work cut out for him. Smoking rates continue to decline, and Altria’s plan for a new product solution has hit a snag.

Altria has a licensing agreement with Philip Morris International Inc. to sell its iQos product in the U.S. if it’s approved by regulators. But a Food and Drug Administration panel concluded in an 8-to-0 vote that Philip Morris hadn’t shown that the heat-not-burn gadget reduces the risk of tobacco-related ailments for smokers who make a complete switch. The panel did find that switching to iQos reduces exposure to harmful chemicals.

The FDA’s final judgment is still up in the air, and Altria could put iQos on U.S. shelves if the agency approves a different application that allows for sales without a reduced-risk label. Barrington said on Thursday that the panel’s decision isn’t bad news.

‘Very Optimistic’

“We remain very optimistic about that,” he said on a conference call, referring to the modified-risk application. The panel “concluded that it reduced exposure relative to conventional cigarettes. And I would think that’s an important thing that FDA will take into account.”

The company is also expanding other platforms that it deems less harmful than cigarettes, including four vapor products. Altria also plans to file a modified-risk application to the FDA for Copenhagen Snuff this quarter, Barrington said.

Altria posted an earnings forecast on Thursday that missed Wall Street projections. The company expects profit of $3.90 to $4.03 a share this year, excluding some items. Analysts had estimated $4.18.

Shares of the company fell as much as 2.7 percent to $68.46 on Thursday. They had dropped 1.5 percent this year through Wednesday’s close.

The outlook suggests that the Richmond, Virginia-based company’s new golden goose -- next-generation tobacco products -- isn’t materializing yet. And its traditional revenue source, cigarettes, continues to lose customers.

Higher Prices

To make up for shrinking cigarette volumes, Altria has been raising prices and cutting costs. The company set a target of reducing expenses by $300 million by the end of 2017. Factory closings will provide an additional $50 million in savings by the end of this year.

But those moves only go so far in a declining industry. Smokeable-product net revenue fell 3.2 percent in the latest quarter and 0.9 percent for all of last year. Industry cigarette volumes declined by 4.5 percent, according to the statement.

Altria also saw shrinking volumes in its smokeless segments in the quarter, pushed down by Skoal. The company issued a recall for Skoal and Copenhagen products made in one of its factories in February 2017 after reports of metal objects within cans.

To contact the reporter on this story: Jennifer Kaplan in Los Angeles at jkaplan84@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder

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