Earnings Preview: Lorillard Inc.

Source from:  A 04/24/2009

Lorillard Inc. reports first-quarter results on Monday. The following is a summary of key developments and analyst opinion related to the period. OVERVIEW: The maker of Newport cigarettes, based in Greensboro, N.C., reported in February that it held roughly 9.86 percent of the U.S. cigarette market. As sales volumes continue to fall, cigarette makers have raised prices to keep revenue growing. Lorillard raised all its wholesale prices 10 cents a pack or a $1 a carton in February, the company said. The federal tax hike that went into effect April 1 could further dampen sales. Lorillard's fourth-quarter profit rose 21 percent to $258 million on higher prices and lower costs. Sales rose 14 percent to $1.09 billion from $957 million a year ago on higher prices and volume. BY THE NUMBERS: Analysts surveyed by Thomson Financial, on average, expect Lorillard to post a profit of $1.15 cents per share for the first quarter. They project revenue at $865.4 million. ANALYST TAKE: Deutsche Bank North America analyst Marc Greenberg expects earnings for the industry overall to be down in the first quarter because of the federal tobacco tax increase. Greenberg said tobacco wholesalers and retailers tried to limit their inventory temporarily in preparation for paying a "floor" tax of 62 cents per pack on what they owned on April 1. But he said first-quarter earnings will benefit from higher pricing. Impacts on volume will be more pronounced on smaller brands rather than major names like Philip Morris USA's Marlboro, Lorillard Inc.'s Newport and Reynolds American Inc.'s Camel, Greenberg said. WHAT'S AHEAD: Analysts believe the large federal tobacco tax increase will hurt earnings in the industry overall for the first half of the year. "We remain positive on the full-year outlook for the tobacco companies, based on higher pricing and lower than expected volume declines driving improved cigarette profitability, and continued smokeless category growth," Greenberg said. The entire industry also continues to await word on legislation to give the Food and Drug Administration the authority to regulate tobacco. The House already has approved it and the Senate could take up a version of the bill this month. Some believe the bill's passage would primarily help Philip Morris USA, which would cement its position as market leader if regulation tightens on marketing and new product introductions. FDA oversight may also impact regulation of flavored cigarettes like Lorillard's top-selling Newport menthol brand. STOCK PERFORMANCE: During the quarter ended March 31, shares of Lorillard rose about 11.8 percent to end the period at $61.74. Over the last 52 weeks, the stock has traded between $52.50 and $79. Enditem