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Altria profits flat in 2nd quarter

The eagerly awaited second quarter report for Altria has come out, and industry honchos are energetically trying to hype it as positive. The best they can say is that revenues are "flat", with falling sales offset by price hikes. Cigarette sales are down – no surprises there – company spokespersons would rather mention the fact that Altria's flagship cancer-stick, Marlboro, has grabbed a larger share (now 51% in the US) of the dwindling market for combustible cigarettes.

(The reported sales slide goes even further toward exposing the laughable falsehood of the headline out of Reynolds/Lorillard that the cigalikes slide against vapor-tank indicates a return to traditional tobacco smokes.)

Of course, declining cigarette sales matter little to vapers except as a confirmation of what they already know, that a great exodus from smoking to vaping is in full swing. So what else is new? But the fortunes of Big Tobacco companies are important to vapers because of their attempts to commandeer the vaping supplies industry. Everyone wonders how Reynolds/Lorillard's sale of Blu to UK juggernaut Imperial Tobacco will affect the Big Tobacco e-cig brands that remain US-owned. Those would include the Reynolds entrée in that market, Vuse, currently being rolled out nationally after test markets in Colorado that the company touted as brilliantly successful. We'll see. And it includes the Altria entrée, Mark Ten, now poised for the same kind of rollout.

Altria's international spinoff, Phillip Morris International (currently independent of Altria, but connected by agreements and brand names), is also getting ready to give an old idea another try. They say they are planning to introduce what might be called a crossover product, a device that produces vapor by heating actual tobacco without burning it. And they claim they will market it under the brand-moniker Marlboro (a novelty in the Big Tobacco e-cig market, which until now has devised or inherited new names for its products). Company spokesfolks talk bravely, but similar products flopped ingloriously in the 90s.

Another area to watch is the Altria-purchased company Green Smoke, which produces not only cigalike e-cigs but also e-liquids for vaping. It looks as though Altria is grooming Green Smoke as its entry into the vapor-tank segment of the vaping supplies market, which is pretty much agreed to be the hot growth segment of that field (at least by those who aren't trying to hype some competing product). Altria is somewhat unique in this regard, since other Big Tobacco firms have been slow to move into e-liquids, except as an ingredient in their replacement cartomizers. At the moment, Green Smoke is the other shoe that Altria hasn't dropped yet, and indeed, most experienced vapers already have their preferred independent e-liquid suppliers. Watch this space.

Another interesting figure in the Altria quarterly report concerns their buyback of cigarette bonds. One of the provisions of the Master Tobacco Settlement of 1997-8 (when 46 states ganged up on Big Tobacco forcing reparations payments for the massive healthcare bill resulting from smoking related disease) was a sum of money set aside for "cigarette bonds". These bonds were sold to investors by the states who won the lawsuit, with funds backed by the tobacco companies as part of the penalty settlement. Dividends amounts were to be linked to the percentage of decline in cigarette sales, which was at 3%. But with a decline currently at 5%, those bonds are in danger of default, and some Big Tobacco firms are buying them back from investors. The Altria quarterly report announces that another billion will be pumped into their buyback program. Since the report is for investors, of course it is spun as a positive. But that hardly seems realistic in terms of the company's future. Altria is stepping up its bond buyback effort because sales are spiraling downward, to be offset by price hikes. Hardly a positive. One resists the temptation to snicker gleefully. Or one gives in to it. Whatever.

On the whole, yesterday's Altria quarterly report was good news for vapers. Tobacco officials are talking bravely, trying hard not to look frantic about gaping holes in cigarette sales and looming defaults on tobacco bonds, and movng e-cig companies around like pawns on a chessboard. All of this against a backdrop of robust health in the vaping community, which tends to prefer its mods, PVs, and vapor-tank systems, supplied by independents whose endgame strategies are looking good.