Fewer Americans smoke cigarettes these days, but Lorillard Inc. is betting it can buck the trend. Last year, as part of a decades-long decline, the percentage of U.S. adults who smoke dropped below 20%. Altria Group Inc. and Reynolds American Inc., the two largest U.S. tobacco companies by sales, have begun diversifying into smokeless tobacco products, which are less harmful than cigarettes, according to studies. Meanwhile, the federal government continues to tighten cigarette regulation, and it’s considering a crackdown on menthol brands, which account for 90% of Lorillard’s sales.

But Lorillard, maker of the Newport brand, is sticking to a strategy of selling only cigarettes, and so far it’s paying off: Cigarette shipments at the No. 3 U.S. tobacco company are up for the second year in a row, and revenue rose 9.1% to $4.85 billion in the 2011 nine months. Volume, meanwhile, rose 7.4% in the period, while it sank roughly 5% at both Altria and Reynolds. Lorillard’s overall share of the U.S. cigarette market is up to 14% from 11% in 2008.

The performance has shown up in Lorillard’s stock price, which is up 37% this year.

Lorillard’s strategy is being spearheaded by Murray Kessler, who became Lorillard’s chief executive in September 2010 after heading UST Inc., a smokeless tobacco company acquired by Altria in 2009. Mr. Kessler doesn’t smoke cigarettes, preferring snuff, a habit he picked up at his previous job. But one of his first decisions at Lorillard was to kill a proposed smokeless tobacco product.

In an interview at Lorillard’s Greensboro, N.C., headquarters, where ashtrays filled with cigarette butts are still common, the 52-year-old Mr. Kessler said it could be decades before smokeless products, which are growing but are less than a tenth of U.S. tobacco sales, surpass cigarettes. “I’m not sure I’m still on this planet at that time,” he added.
Still, Lorillard’s wager comes as the government is mulling special curbs on the use of menthol. Anti-smoking groups say the mint flavoring masks the cigarettes’ harsh taste, making it easier to start smoking and harder to quit. A Food and Drug Administration panel concluded in March that eliminating menthol cigarettes would benefit public health, but it stopped short of recommending a ban. In coming weeks, the FDA is expected to publish results of a scientific peer review on menthol’s effects, but it has no deadline for reaching a decision.

Shutting down the $25 billion menthol-cigarette industry would eliminate billions of dollars in U.S. tax receipts, jeopardize thousands of jobs and spawn a black market, Mr. Kessler said. “You would create havoc the likes of which this country hasn’t seen since Prohibition.”

Menthol is no more harmful than other cigarettes, he said, adding that he expects the FDA’s menthol review process to be “very long.”

Lorillard’s critics agree an immediate ban is unlikely. “You can’t just tell millions of people to go cold turkey, so it would have to be a phase-out,” said Ellen Vargyas, general counsel at Legacy, an anti-smoking group.

Meanwhile, Mr. Kessler, who became chairman in January, sees big opportunities in cigarette markets that the company has never fully tackled since its founding in 1760.

Lorillard recently stepped up Newport menthol sales efforts west of the Mississippi River after focusing for decades on the Eastern Seaboard, where its market share is roughly twice as big.. It has also been promoting a milder version of menthol cigarettes called Newport “Gold.”

Lorillard is the market leader in menthol, but that category accounts for only about 30% of U.S. cigarette sales. Late last year, the company launched a nonmenthol version of Newport in red packaging instead of green, and it quickly gained a 1% market share, driving much of Lorillard’s growth this year.

It has also been winning over smokers with its fast-growing Maverick discount brand, and it plans to roll out another nonmenthol line that will be milder than its Newport “Reds.”

“They’re much bigger ponds to fish in,” Mr. Kessler said.

But the company’s two larger rivals have already plumbed those markets, making growth tougher. Altria, owner of Marlboro, the leading cigarette, has a 49% market share in cigarettes. Reynolds, which boasts the Camel cigarettes and Pall Mall brands, has a 27% share.

Lorillard has benefited because its smokers are younger on average, although how much younger is in dispute. A federal survey published in 2009 showed 45% of smokers 12 to 17 years old used menthol brands. Lorillard notes that other data show that under-age smoking rates are lower in states where menthol’s market share is higher.

Newport cigarettes are also popular among African-American adult smokers, about 80% of whom prefer menthols. Unlike Altria and Reynolds, Lorillard still advertises cigarettes in magazines, including those targeting African-Americans.

David Adelman, a tobacco analyst at Morgan Stanley, says Lorillard’s smokers are more urban and less likely to switch to smokeless products such as snuff, in which tobacco is held in the mouth between the gum and cheek. “It’s pretty unacceptable to spit walking down Fifth Avenue,” the analyst noted.

Altria CEO Michael Szymanczyk told investors recently that the company can capitalize on consumer shifts to smokeless products by investing in snuff brands such as Copenhagen and Skoal.

Altria, which also has a 27% stake in brewer SABMiller PLC and has acquired some wineries as it diversifies beyond cigarettes, has “just begun unlocking the potential that exists in our businesses,” he added.

Reynolds, which owns the Grizzly and Kodiak snuff brands, also markets spit-free tobacco pouches called snus and oval-shaped lozenges called orbs. It notes that profit margins on smokeless products are roughly 50%, compared with 30% for cigarettes.

Smokeless “makes commercial sense, and it’s the right thing to do,” CEO Daniel Delen told investors last month.

A Superior Court judge ruled yesterday that the man who won a $152 million lawsuit last year against a tobacco company for causing the death of his mother – by giving her free cigarettes when she was just a child – can collect the money with interest retroactive to 2004, the year the case was filed. The state allows for interest to be collected at 12 percent a year, meaning the $152 million judgment could essentially double.

Superior Court Judge Elizabeth M. Fahey made the decision on the same day she found that Lorillard Tobacco Co. violated state consumer protection laws by targeting young children in black communities a half century ago with its new Newport brand, which it knew could cause cancer.

“I accept that Lorillard manipulates the levels of tar, nicotine, and menthol in Newport cigarettes, which eases initiation to smoking and often results in lifelong addicts with negative health consequences,’’ Fahey said in a 56-page ruling.

She added, “The evidence convincingly established that over decades [Lorillard] marketed its cigarettes, including Newports, to minors.’’

The decision was part of the case of Marie Evans, who received free samples of Newport cigarettes when she was 9 years old, while the company was handing them out near the Orchard Park housing development in Roxbury where she grew up in the 1950s. By 13, she was addicted to cigarettes, she said in depositions before her trial.

Evans continued to smoke, even while pregnant with her first and only child and after a heart attack at age 36, until she died in 2002 of small-cell lung cancer. She was 54.

The lawsuit was brought by her son, Willie Evans.

Lawyers for Lorillard had argued that Evans became aware of the dangers of cigarettes and should have quit. Lawyers for Evans’s estate argued that she tried, more than 50 times, but that she could not break an addiction that began as a child.

In December, a Suffolk Superior Court jury found that Lorillard, of North Carolina, negligently marketed its cigarettes to youngsters and failed to warn consumers, including Evans, of the dangers of smoking. The jury also found that the company created a state of confusion among the public by saying it would research whether cigarettes caused cancer when it knew all along of the health risks.

Edward L. Sweda Jr., senior attorney for the Tobacco Products Liability Project at the Northeastern University School of Law, said yesterday that the judge’s decision shows that tobacco companies are still being held liable for their egregious conduct from years ago. He also said that the ruling that the company violated consumer protection laws will serve as a basis for other lawsuits here and across the country. One, alleging fraud by tobacco companies for describing light cigarettes as safer cigarettes, is still pending.

“Directly putting cigarettes into the hands of kids was especially egregious, and today’s ruling is perfectly consistent with how outrageous that conduct was,’’ Sweda said. “This is important. It’ll be helpful for future tobacco litigation within Massachusetts as well as . . . across the country.’’

Fahey’s ruling yesterday is a separate proceeding from the jury trial. But the judge came to the same findings in determining that Lorillard breached its duty to properly research the hazards of smoking and provide that information to the public when it started handing out cigarettes a half century ago.

The judge did not award an additional monetary judgment as part of her ruling, but said Evans’s son can seek reimbursement for legal fees. The $152 million jury judgment was for him and for his mother’s estate.

Evans’s lawyer, Michael Weisman, of Davis, Malm & D’Agostine of Boston, said yesterday that Fahey’s ruling not only supports the jury’s verdict but also the original contention that Lorillard wantonly and recklessly targeted children in its marketing campaign. Throughout the trial, Weisman showed that the company also reached out to inner-city neighborhoods with its new Newport brand, a menthol cigarette that has shown to be popular in black communities.

“It is yet another fact finder who has ruled that the evidence is conclusive and proves that Lorillard targeted children, handed out cigarettes to children unlawfully, caused children like Marie Evans to become addicted, at a time when it knew the product it was distributing caused cancer,’’ Weisman said.

Lorillard Inc., the third largest manufacturer of cigarettes in the United States, has announced the appointment of Dr. Neil L. Wilcox, a former U.S. Food & Drug Administration (FDA) science policy analyst, as senior vice president of product-related regulations and chief compliance officer. In the newly created role, Wilcox will oversee and manage regulatory affairs, including plans to achieve regulatory compliance with federal regulations such as the Family Smoking Prevention & Tobacco Control Act.

“Neil Wilcox brings a commanding knowledge of regulatory affairs to Lorillard, where he will help build out a robust regulatory function to meet the requirements of the federal tobacco law and FDA regulations,” said Murray S. Kessler, chairman, president and chief executive officer of Lorillard.

Wilcox comes to Lorillard from the FDA, where he spent 13 years as a science and regulatory expert, most recently as science policy analyst in the Center for Food Safety & Applied Nutrition since 2008.

From 1990 to 1999 his work at the FDA included serving as senior science policy officer in the Office of Science, Office of the Commissioner. He left the FDA in 1999 to serve as director of global regulatory affairs at The Gillette Co. and then as vice president of global regulatory and scientific affairs at Kimberly-Clark Corp. At both corporations his role included developing and implementing plans to achieve global regulatory compliance for a range of products.

Lorillard, through its Lorillard Tobacco Co. subsidiary, is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard’s flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette in the United States. In addition to Newport, the Lorillard product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five brands include 43 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, N.C.

Cigarette maker Lorillard says its net income increased 7 percent in the first quarter as it sold more Newport and Maverick cigarettes at higher prices. Lorillard says it earned $248 million, or $1.71 per share, for the period ended March 31. That’s up from $232 million, or $1.50 per share, a year ago. The per-share figure was boosted by a lower number of shares outstanding.

The nation’s third-biggest tobacco company says revenue excluding excises taxes increased 14 percent to $1.06 billion.

Analysts expected earnings of $1.57 per share on revenue of $955 million.

Lorillard, based in Greensboro, N.C., sold 9.5 percent more cigarettes on gains from Newport and lower-priced brands like Maverick. Rivals Reynolds American and Altria Group both reported selling fewer cigarettes during the quarter.

A Massachusetts jury has held a tobacco company liable for the death of a Boston woman who said she was given free Newport cigarettes at age 9. The Suffolk County Superior Court jury awarded $50 million Tuesday to the estate of Marie Evans, who died of lung cancer in 2002, The Boston Globe reported. Her son was awarded $21 million.

Evans had testified that she first received free Newports as a child. She smoked until her death at age 54.

Lorillard denies targeting youth with free cigarettes and said it will appeal.

The jury is the first to find a cigarette maker liable for marketing its product by handing out free samples, legal experts said.

In its next stage of deliberations, the jury also could give Evans’ estate and family punitive damages, which often are a multiple of compensatory awards.

The jury found Lorillard negligent in marketing cigarettes to children and failing to warn of health risks; that it breached its warranty by distributing a dangerous product; and acted in a malicious, willful, wanton manner.

The jury placed 70 percent of the blame for the woman’s death on Lorillard, and 30 percent on Evans.

A lawsuit by a Massachusetts man who accuses Lorillard Tobacco Co. of trying to entice black children to smoke is expected to go to the jury this week. The son of a Boston woman who died of lung cancer sued the maker of Newport cigarettes, claiming the company lured his mother to begin smoking at age 13 by giving away free samples at the Boston housing project where she lived.

Lawyers for North Carolina-based Lorillard say there is no evidence the company gave away cigarettes to children at the housing project.

The company’s lawyer argued at the trial that it was Marie Evans’ choice to start smoking and to continue smoking for 40 years despite warnings from her doctors.

The trial began last month. Closing arguments are scheduled Monday in Suffolk Superior Court.

HAMMOND | A Delaware tobacco company is suing Dyer businesses for damages after the stores allegedly sold counterfeit Newport cigarettes, according to an amended complaint filed this week in Hammond federal court.
Lorillard Tobacco Co. filed a federal lawsuit against Dyer’s Smokers Den and Always Open convenience store, both located in the 15000 block of West 101st Avenue, and the company shareholders, Subhash Malhotra, Manzoor Hussain, Amanat Hussain, Mazhar Hussain and Asif Mehmood.

Chicago attorney Peter Soukaras, who is representing the businesses and shareholders, said they are working with Lorillard to find out how 20 or 30 crates of potentially counterfeit cigarettes got into the stores’ inventories. Soukaras said Smokers Den sells hundreds of packs of cigarettes a week.
“My client is not willfully disseminating counterfeit cigarettes and is cooperating fully with Lorillard, and is seeking from the onset an amicable solution to make sure this doesn’t happen again,” Soukaras said.
When asked the names and number of the stores’ wholesale suppliers, Soukaras said he could not comment because they “have been cooperating to ascertain that information.”
Lorillard claims the businesses have been selling counterfeits of its leading brand, Newport cigarettes, according to court records. Newport cigarettes have been around since the 1950s, according to the complaint, and are now the leading brand of menthol cigarettes sold in the U.S.
The lawsuit cites increases in federal and Indiana state cigarette taxes as increasing the number of counterfeiters.
“With these high tax levels, bootleggers can price counterfeit cigarettes below prevailing market prices and can pocket not only the profit on the cigarettes themselves but also a substantial portion of what would otherwise be owed to the government in taxes,” the lawsuit states.
Attorneys from Hammond’s Eichhorn & Eichhorn firm who are representing Lorillard declined to comment due to the pending litigation.

Cigarette maker Lorillard says its net income rose more than 16 percent as it sold more cigarettes at higher prices. The maker of Newport, Maverick and True cigarettes says it earned $274 million, or $1.81 per share, for the period ended Sept. 30. That’s up from $235 million, or $1.44 per share, a year ago.

The nation’s third-gest tobacco company says revenue excluding excises taxes increased 12.6 percent to $1.07 billion.

Analysts expected Lorillard to earn $1.64 per share on sales of $1.01 billion.

Lorillard sold 5.8 percent more cigarettes on gains from Newport and lower-priced brands such as Maverick.

Last week, rivals Reynolds American and Altria Group both reported selling fewer cigarettes.

Lorillard 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