Lorillard’s Profit Surges As Newport Shipments Increase
Tuesday, April 27th, 2010Lorillard Inc.’s first-quarter profit jumped 26% as its cigarette shipments increased and the company’s Newport menthol cigarettes grew their market share.
Lorillard, the third-largest cigarette manufacturer by sales, dominates the market for menthol cigarettes, which have done better than regular cigarettes in the U.S. in recent years.
The company’s earnings and revenue beat expectations. Still, Lorillard cautioned that fluctuations in retail inventories early last year complicated comparisons with the recent quarter and that the big comparative shipment increases may not continue into the second quarter.
Retailer inventory levels on cigarettes fluctuated sharply early last year in the midst of tax changes on cigarettes, making comparisons with this year’s shipments difficult. Wholesalers and retailers brought down their cigarette stocks and purchases to unusually low levels in the first quarter of last year, ahead of an expected increase in federal excise taxes on cigarettes that took place in April 2009.
The retailer stocks later picked up again, and some retailers even appear to have built up more than needed inventory in this year’s first quarter, the company said.
Lorillard’s first-quarter profit was $232 million, or $1.50 a share, up from $184 million, or $1.09 a share, a year earlier. Shares outstanding fell 8% as the company repurchased 2.6 million shares during the quarter.
Sales soared 48% to $1.36 billion and climbed 20% excluding excise taxes. Sales excluding excise taxes were $923 million, compared with $767 million a year earlier. Analysts polled by Thomson Reuters predicted earnings of $1.22 a share on $803 million on sales.
Lorillard’s dependence on menthol cigarettes for revenue has put the company in greater focus recently. Some public health advocates argue that menthol, which is generally derived from mint plants, masks the harmful flavors of cigarettes and encourages people to smoke. A special panel of health and other experts has in recent weeks begun to work with the Food and Drug Administration to help the agency decide whether it should restrict sales or marketing of menthol products.
On a conference call, Lorillard Chief Executive Martin Orlowsky said the thrust of the panel has largely been as expected so far. The company still believes that scientific research supports its view that the effects of menthol cigarettes aren’t different from regular cigarettes, he said.
In the latest quarter, the company’s U.S. wholesale shipments climbed 12.7%. The company’s domestic retail market share increased by 1.17 share points over the year-ago period to 12.61%. Newport domestic retail market share increased by 0.75 share points from a year earlier to reach share of 10.9%.
Newport is Lorillard’s main brand, although the company sells other cigarette brands like Maverick and Kent.
—Matt Jarzemsky contributed to this article. Online.wsj

