Investors who looked for big companies by market capitalization to offer safety lost money last week. British American Tobacco (BTI) unexpectedly took a massive $31.5 billion asset write-down. Why?
BAT re-valued some of its U.S. cigarette brands. CEO Tadeu Marroco said that accounting is catching up with reality. Instead, the brands are not likely to give around $80 billion in value. The non-cash adjustment impairment charge will take into account the new brand values. BAT will start amortizing the remaining value of the U.S. combustibles brand in 2024.
BTI stock hurt Philip Morris (PM) and Altria Group (Mo). Universal (UVV) stock did not fall.
In the personal products sector, Procter & Gamble (PG) said it would write down up to $2.5 billion from its 2005 acquisition of Gillette. This amounts to $1 billion after-tax and is a non-cash impairment. P&G applied a higher discount rate and cited weakening currencies compared to the U.S. dollar. In addition, the firm will account for restructuring in Argentina and Nigeria to take charge of $1.0 billion to $1.5 billion.
P&G’s Gillette unit faces weak demand ahead. Customers are shifting from razors to electric shavers. That will hurt its revenue prospects for years to come.