The tobacco sector's latest setback

The CDC takes its gloves off and goes after Big Tobacco.

By Motley Fool Pick of the Day Mar 19, 2012 2:21PM
By Sean Williams


The tobacco sector is a giant. It spends approximately $10.5 billion a year on marketing and advertising in order to keep 20% of the American public smoking. This isn't to say it doesn't acknowledge the harmful effects of smoking, or that it ignores the growing number of smoking dissidents campaigning against them; it's just that I equate this situation to poking a dinosaur with a twig.


Well, the twig just got a little bigger.


The Centers for Disease Control and Prevention on Thursday unveiled a three-month, $54 million campaign whereby it will, through billboards, print, online, radio, and television ads, use stark imagery to showcase the effects of smoking. This is the first time the CDC has taken its advertising campaign to television but definitely isn't the first time antismoking advocates have used a shock-and-awe message to get users to listen.


In the early 2000s, the American Legacy Foundation's "truth campaign" is largely attributed to decreasing the number of younger smokers.


The overall goal of the advertisements is to shrink the smoking base by about 50,000. It's estimated that over the next three years, more than $170 million in medical costs will be saved by this campaign.


For the sector, it represents just another blow in their endless legal battle against the United States' stringent laws. Luckily for Big Tobacco, a plan that would have required nine graphic images that detailed the effects of smoking to be placed on cigarette packs was deemed unconstitutional last month. But that doesn't mean U.S. tobacco stocks are out of the woods.


Altria (MO), a company I have derided for months now, has laid out plans to reduce its workforce by 15% in response to declining sales. Its flagship Marlboro brand saw volume decline by 0.6% in the fourth quarter as it continues to be undermined by discount brands.


Following suit, Reynolds American (RAI) last week announced it would be reducing its workforce by up to 10% by 2014 in order to cut costs and maintain profitability levels. The company did say the majority of those leaving were doing so of their own free will. Yay, I guess?


Even Vector Group (VGR), which primarily caters to discount brands, witnessed its unit volume decline in the fourth quarter and only grew sales by implementing price increases. The other concern for a company like Vector is its small cash position. Being smaller is not always a disadvantage, but in a sector where lawsuits are a fact of life, possessing just $317 million in cash just doesn't seem like enough.


I've said it before and I'll say it again: If you want to play the tobacco sector, the only smart move is to look beyond the strict laws of the United States. Philip Morris International (PM) may not offer the sexiest dividend of the bunch, but its revenue stream is considerably safer, and its legal team far less active, than its U.S. partners. If you're heart-set on looking within the U.S., Lorillard (NYSE: LO ) appears to be the strongest play at the moment. It's practically the only domestic tobacco producer with increasing cigarette volumes.


As usual, it's going to be interesting to see how this campaign plays out. From a personal, nonsmoker perspective, I wish it tons of success, but we'll just have to check back on these stocks in the fourth quarter at the earliest to see whether it truly had an impact.


Am I blowing smoke or do domestic tobacco producers have a reason to be worried? Share your thoughts in the comments section below.


Fool contributor Sean Williams has no material interest in any companies mentioned in this article. The Motley Fool owns shares of Altria and Philip Morris International. Motley Fool newsletter services have recommended buying shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's never the butt of jokes.


Mar 19, 2012 5:04PM
Another $54 million of taxpayer monet wasted. WHO DOESN'T KNOW SMOKING IS BAD FOR YOU. If you want to smoke that should be your right. The Supreme Court said a woman can do want she wants with her body and can have an abortion. Why can't cigarette smokers have the same right? Also for all of you who will comment on second hand smoke, THERE HAS NEVER BEEN ONE PROVEN CASE OF SECOND HAND SMOKE-NEVER EVER
Mar 20, 2012 6:00AM
I am really sick of all these groups and the government telling me what is best and basically strong-arming people to do what they want. I don't smoke cigarettes and never will but this massive push against individual choice is just p[ssing me off. Don't smoke, eat very little red meat, be a vegetarian/vegan, you must be 4'3" or you have to be in a booster seat in a car, go green, and how the hell to raise kids. The information on smoking has been around for years and the majority of people know all the negative things causally linked to smoking. If they know those things and still do it then leave'em the hell alone! Stop trying to micromanage everybody's lives you Nazi S.O.B's! For f#cks sake this is ridiculous.
Mar 20, 2012 8:05AM

I keep telling people , We don't live in a FREE COUNTRY...Never have and Never will, We have always had a GOVERMENT telling US what we CAN and CAN"T do.....I say we unite And vote them

ALL OUT.....

Mar 20, 2012 2:29AM
 I choose to smoke 5 cigarettes a-day I believe I will probably not suffer any bad effects.   I enjoy a smoke after a  meal or with a good cup of coffee.  I thought I lived in America.  I am way over 18 get the hell out of my wallet and stay out of my face.


Mar 19, 2012 11:40PM
Why won't the CDC plaster the world with billboards full of graphic images of the reality alcohol consumption and the dangers of obesity both of which cause more health problems, death and carnage than tobacco? Why is it OK to advertise beer without any graphic pics and large print warnings. To my knowledge nobody has ever beaten the spouse and kids, or crashed head-on into another car killing innocent people because they were under the influence of cigarettes.
Mar 20, 2012 3:39AM
I smoked off and on for over 50 years and tried to quit many times and always started again. I've been vaping an e-cig for 2 1/2 years and no longer smoke at all. Even though e-cigs cause no harm to others and my health is 100% better than it was the dogooders even want to ban them! Ignorance is alive and well in America. A device has been invented that can help millions get off of cigarettes and both the Big Tobacco and the Big Pharmecuticals along with the anti smoking people are all fighting against them. I belong to a group of 60 members that are over 55 and we had all smoked for over 40 years. We all have quit smoking and use a nicotine vaporizer. The anti's should be supporting e-cigs instead of lumping them in with smokers if they really care about people quitting smoking that is. The problem is their hatred for smoking has blinded them and they don't want to know the truth!
Mar 20, 2012 2:35PM




Mar 20, 2012 3:09AM
So, the Government wants to save us smokers from ourselves huh... But yet all the pollutants from cars isn't really a big deal? Quit trying to tell ME how YOU think I should live MY life.
Mar 20, 2012 2:04PM
I grew up on a tobacco farm, smoked only a few years in th 70s Later went on to become a health professional but I have  always been somewhat conflicted when the tobacco industry is slammed. It was  the source  of income for my family and we took a lot of pride in growing a quality product.  Over the years i have seen many cases of all sorts of diseases and I would not want any of my children to begin smoking  but i don't believe that smoking should be blamed any more than obesity, alcohol, lack of physical exercise,diabetes for causing fatal illness. Money spent on changing people's overall lifestyle would be more wothwhile than bashing one industry
Mar 19, 2012 8:17PM
I quit for 5-1/2 years. and during a stressful time last year....started again. I hate that i smoke. However, don't preach at me to quit (i do enough of that to myself). It's costing taxpayers no more for smokers than it is for overeaters, alcoholics, druggies and people who are doing other stupid things. Lets talk about what the insecticides on our food and in our water supply are doing to people. Everybody has been exposed to something, whether self administered or not.
Mar 20, 2012 2:19PM
The Constitution say freedom  of choice , i respect those that dont  smoke so i dont smoke around them, I lost a wife to COPD, i have served this country, i have smoked for 40 yrs,and ill be dammed if the goverment will tell me what to do.Its my choice to quit or not.This is a way to lay off people from work cause more family  needing help from the goverment., Ican smoke and live long than someone who drinks and drives and kills them self or others, Meth heads they die  im still around . Crack heads die im still around , goverment should work on that and spend millions to stop that , then maybe work on programs to help people to stop smoking
You can talk all day long and write all the articles you want against smoking, but we smokers know this is a hate campaign, and no matter how many statistics you quote about the dangers of smoking, you can't camouflage the hatred with your phony concerns about health issues.  Go blow smoke out your butts!!!!!
Mar 20, 2012 12:56PM
Yes, it is true that I am sick and tired of being a 3rd class citizen just because I smoke.  Non-smokers need to get a grip.  We pay TONS of taxes to have cigarettes.  And I assure you that the government loves the tax money.  If we were to quit smoking do you REALLY think the government won't find another way to generate income???Then all you "smokerhaters" can help take up the slack for all that money "we" no longer provide.  When I worked at a place that had a smoking and a nonsmoking room which room do you suppose everyone came to??  And I seem to remember when smoking was allowed in bars it sure didn't slow any nonsmokers down.  They were right in there having a good time.  Smokers should have their own places and if you don't like the smoke don't go in there!   But if an institution wants to have smoking in their building they have to pay a fortune to get a license.  Most can't afford that. Be fair people.  Let the business decide to have a smoking establishment without undue licensing fees.  If there is smoking and you don't like it, DON'T GO THERE.  There are certainly enough nonsmoking businesses to make you happy.
Mar 19, 2012 11:20PM
Grew up in an age where anyone could go up to a cigarette machine and buy a pack. I think they were 25 cents then. Choose not to take up smoking but it is not my business to tell someone else they cannot. If you want to smoke it is not my place nor is it the governments place to tell you that you cannot.

And that crap about how much smokers cost the government in medical cost is BS. Cigarette sales amount to billions in tax revenue. Far more money than it cost to take care of cancer patients that got cancer from smoking.
Mar 20, 2012 7:02AM
So...let me guess...where does the CDC get the $54M that it's going to waste on this useless campaign to get people to see things THEIR way?  Couldn't be from the taxes that both smokers and non-smokers pay, could it?  Just another worthless government agency throwing people's hard-earned money away on frivolous nonsense without our consent.
Mar 20, 2012 1:23AM
   I would like to propose that the CDC spend a lot more effort on the problems of alcohol and drugs. At least 75% of crime and death are caused by people on one or both. No one has ever smoked one to many cigarettes and shot up a school or crashed head on into a van full of athletes going to a game. The BS about second hand smoke at out door functions is the coming from the same people who say we only have 8% unemployment and the economy is back to where it was before the great recession. What or who do you want to belive ???
Mar 20, 2012 1:55PM

Where is the dis-like button. As a smoker the constant attacks againts smokers make me sick. We are the most  discriminated against group of people with no form of legal protection. Smoking is a choice, no one ever froced me to smoke. I sure as hell don't see them spending this kind of money and creating unconstitutional laws to stop people from drinking or even using drugs. Oh maybe thats because those thing are still considered fashionable in Hollywood and New York. If graphic images of the after effects of smoking are ok, how about we start putting images of the after effects of drunk driving on your wine.

Mar 20, 2012 7:42AM
I am tired of the government trying to control everything we do. They keep demanding more and more of our taxes, and just piss them off, and demnd more. The cigarette industry pays huge amounts of taxes , I guess they expect us to pay more to offset what the cigarette industry doesn't pay ? Keep out of my life, government !  I vote for anybody BUT Obama
Mar 19, 2012 11:26PM
Oh buy the way,if anyone doesn't think this is about money your'e only kidding yourself.Goverment forces tabacco companies to raise prices,make even more millions, which in turn gives the federal goverment more tax money.Even though I don't smoke,I think it's a disgrace how our government keeps soaking the tax payers every chance they get.Or in this case the chance they created.More corporate and government scamming.
Mar 20, 2012 1:26PM

Smokers have become the victims of more harrassment than any other minority in this country.

Smokers have the right to their freedoms just like any other group.

Amazes me that in California they want to legalize POT but  just try to light a cigarrette and people go ballistic    LEAVE US ALONE AND MIND YOUR OWN BUSINESS !!!!!!!!!!!!

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