Noting that details remain ‘sparse,’ Wells Fargo reported USSTC issued a ‘stop sale’ on select smokeless brands, effective yesterday.
“We just learned from a few more of our industry contacts that this issue is possibly bigger than originally feared,” said Bonnie Herzog, senior analyst for Wells Fargo. “As a result, the headwind to smokeless volumes could be worse than originally thought (below). According to our industry contacts, the product ‘pull’ is not due to flavor issues or handling dangers. We’re hearing that Copenhagen Long Cut Mint could be the most impacted.”
USSTC reportedly cited “suspected quality issues” as the reason behind the unexpected product recall, according to Wells Fargo. “As the order was issued to USSTC’s wholesalers, not retailers, we have a difficult time thinking it is a true problem with quality that could potentially harm or be off-putting to consumers. However, we’re now hearing from more of our contacts that this could be a bigger issue near-term given that it does include Copenhagen & Skoal,” said Herzog. “We assume this should be a self-contained, manageable event for USSTC; however, depending on how widespread and extended this lost volume is, it could negatively impact Altria’s overall Q1 EPS by a few pennies.”
Despite the unexpected event, Wells Fargo reiterated its strong confidence in Altria and its competitive positioning, particularly behind its core Marlboro & Copenhagen franchises.
“We continue to see Altria as a best-in-class operator and expect it to be able to effectively offset ongoing secular declines in combustible cig industry volumes with strong net price realization, thereby preserving its cash flow strength and inimitable brand equity,” Herzog said.