Lorillard Q3 Profit Declines On Costs; Sales Up 7.8%

Source from:  (RTTNews) by RTT Staff Writer 10/27/2008 10/29/2008

Monday, cigarette manufacturer, Lorillard Inc. (LO: News ) reported that its third-quarter net income declined nearly 3%, despite higher sales, hurt by higher expenses related to manufacturing costs and legal expenses. Lorillard, a spin-off of conglomerate Loews Corp. (L) began trading on the New York Stock Exchange in June 2008. The company's net income for the quarter declined to $237 million or $1.38 per share from $244 million or $1.40 per share in the year-ago period. On average, 6 analysts, polled by FirstCall/Thomson Financial expected the company to earn $1.35 per share. Lorillard blamed the higher expenses related to higher manufacturing costs, the State Settlement Agreements, higher legal expenses, lower investment income and a higher effective tax rate for the decline in net income. Driven by higher average unit prices and higher net unit sales volume, quarterly net sales increased 7.8% to $1.125 billion from $1.044 billion in the third quarter of 2007. The company's quarterly sales were well above Wall Street analysts' consensus revenue estimate of $1.03 billion. The company's flagship brand is Newport, a menthol-flavored premium cigarette brand and the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport, the Lorillard product line has five additional brand families marketed under the brand names - Kent, True, Maverick, Old Gold and Max. The total wholesale shipment volume for the quarter was 10.093 billion units, up 4.5% compared with the year-ago quarter. Domestic wholesale shipments for the quarter were up 4.5% to 9.89 billion units. Total industry shipments are estimated to be down 3.4% for the third quarter of 2008 compared with the third quarter of 2007, the company said. Gross profit was $472 million in the third quarter of 2008, up from $430 million in the year-ago period, reflecting an increase in net sales. Due to the continuing defense costs associated with the Engle progeny cases and other matters, legal expenses increased $9 million in the third quarter of 2008 compared to the third quarter of 2007. The Engle progeny case is a long-running litigation filed against cigarette makers on behalf of sick smokers. Selling, general and administrative expenses for the quarter rose to $90 million from $82 million in the year-ago period. The company's effective income tax rate for the quarter was 38.5%, up from 36.0% in the third quarter of 2007, which increased income taxes by $10 million, primarily due to the impact of the separation from Loews on the availability of the manufacturer's deduction for the pre-separation period and the favorable resolution of certain tax matters in the third quarter of 2007. On July 9, the company was obligated by its Board to repurchase up to $400 million of its outstanding common stock. During the recent third quarter, Lorillard repurchased about 3.9 million shares at an average price of $70.36 per share, for a total of $274 million. As of October 10, 2008, the company completed its $400 million share repurchase program after repurchasing, in the aggregate, approximately 5.9 million shares at an average purchase price of $68.22 per share. On August 21, 2008, Lorillard announced a quarterly dividend of $0.92, payable September 12, 2008 to shareholders of record September 2, 2008. For the nine months ended September 30, 2008, the company's net income declined to $629 million or $3.62 per share from $684 million or $3.93 per share in the year-ago period. Lorillard's net sales for the first nine months of 2008 rose to $3.12 billion from $3.01 billion in the year-ago period. Tobacco manufacturer Reynolds American Inc. (RAI), which reported third quarter results last week, posted net income that was down 41% to $211 million or $0.72 per share, hurt by charges related to restructuring and trademark impairment. Net sales for the quarter dropped 1.1% to $2.27 billion from $2.29 billion in the year-ago period. LO is currently up 3.87% trading at $60.38 on a volume of 122,480 shares. Enditem