For a long time, Altria Group's (MO 0.45%) biggest challenge was navigating the turbulent world of cigarette litigation and regulation. With consumer safety groups focusing on supporting the gradual but steady decline in adult smoking in the U.S. over the past several decades, Altria thought that exploring and encouraging potential alternatives to traditional cigarettes might be a reasonable way to perpetuate its business. Instead, e-cigarettes have come under fire as well.

Coming into Thursday's fourth-quarter financial report, Altria investors had hoped that the recent controversy over e-cigarettes wouldn't have too big an impact on its overall business. Altria's report included a massive impairment charge related to its investment in e-cig giant JUUL Labs, causing the tobacco giant to post an overall loss and triggering a big strategic shift for Altria going forward.

Red ink for Altria

Altria's fourth-quarter results reflected the ongoing pressures that the company has faced. Revenue net of excise tax inched higher by 0.3% to $4.80 billion, which came in slightly below the $4.88 billion that many of those following the stock had anticipated seeing. Altria posted a net loss of $1.81 billion, and even after adjusting to remove the big one-time charges the tobacco giant suffered, adjusted earnings of $1.02 per share just matched the consensus forecast among investors.

Altria sign with multicolored logo and flagpole in background.

Image source: Altria Group.

The most stunning part of the report was the negative impact from Altria's investment in JUUL. The company took a massive $4.1 billion impairment charge against its investment, saying that a rising number of legal cases pending against the e-cigarette company justified the increase. That brought the total impairments Altria's taken against its initial $12.8 billion investment in JUUL to $8.6 billion, or about two-thirds of what Altria put into the company.

Elsewhere, Altria's key segments saw somewhat mixed performance. Revenue net of excise tax for the smokeable products segment fell 0.5% year over year on an 8.7% drop in cigarette shipment volumes, but adjusted operating company income climbed at a healthy 10% rate. Altria's market share in the segment fell to 49.5%, down from 49.9% a year ago. The smokeless products division looked better, with a 6% rise in sales matching up well with a nearly 10% gain in adjusted operating company income, despite weaker shipment volumes. Altria's wine business saw slight revenue gains but suffered a drop on its bottom line due to higher costs.

What's ahead for Altria and JUUL?

CEO Howard Willard did his best to accentuate Altria's primary businesses. "Despite the unexpected challenges related to our investment in JUUL," Willard said, "we made significant progress advancing and building our noncombustible business platform." The CEO pointed to the launch of the IQOS heated tobacco system and its majority investment in the producer of on!, an oral nicotine product, as potentially driving growth into 2020.

Yet behind that statement was a considerable shift in Altria's overall strategy. The tobacco giant modified its deal terms with JUUL, stepping back from many of the services that Altria offered to JUUL in its original investment. Altria also set the stage to get out of its noncompete agreement with JUUL, either if federal law bans e-vapor product sales in the U.S. or if Altria's carrying value for JUUL falls below 10% of the original $12.8 billion investment.

Altria's growth for 2020 will also fall short of investors' hopes. Adjusted earnings should come in between $4.39 and $4.51 per share, up 4% to 7% from 2019's full-year adjusted earnings of $4.22 per share. That's not very different from what analysts were expecting, but it still reflected the uncertainty in Altria's business right now.

Altria shares fell sharply following the announcement. Until lawmakers and the U.S. Food and Drug Administration figure out exactly how they'll handle e-cigarettes, there'll be a cloud over Altria -- and over the heads of shareholders hoping for a rebound in its stock price.