Lorillard to Report 2Q Results Monday That Will Show Effect of Federal Tax Hike

Source from:  The Associated Press 07/27/2009

Lorillard Inc. reports second-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 April that the menthol brand market share increased in the first quarter despite a decrease of 10.6 percent in Newport's domestic wholesale shipments. During the first quarter, the U.S. tobacco industry saw cigarette volumes drop as retailers and wholesalers cut their orders ahead of a one-time federal tax on their inventory. Tobacco sellers had to pay a "floor" tax of 62 cents per pack on whatever they had on hand before a 62-cent-per-pack retail sales tax increase went into effect April 1. Tobacco makers have until July 31 to make those payments on product that was ready for distribution. Lorillard's largest competitors - Altria Group Inc. and Reynolds American Inc., which reported earnings this week - beat Wall Street estimates for their second-quarter results. Altria Group Inc., owner of the nation's biggest cigarette maker, Philip Morris USA, maker of Marlboros, said its profit rose 9 percent as it cut costs and integrated a recently acquired smokeless tobacco maker. Revenue grew 33 percent to $6.72 billion from $5.05 billion largely on higher prices that included the 62-cent federal tax hike. Reynolds American Inc. - the second-biggest cigarette seller in the U.S., with brands such as Camel and Pall Mall - reported Thursday that its second-quarter profit climbed 4 percent because it raised prices and cut costs as sales volumes slipped and the tax hike took hold. Reynolds also beat forecasts. BY THE NUMBERS: Analysts surveyed by Thomson Financial on average expect Lorillard to post a second-quarter profit of $1.43 cents per share on revenue of $969 million. That compares with a reported profit of $1.25 per share on revenue of $1.07 billion a year earlier, when expenses included spinning off from Loews Corp. and a tax increase. ANALYST TAKE: Analysts expected a short-term impact in earnings for the first half of the year stemming from the federal retail sales tax increase. Goldman Sachs analyst Judy Hong told investors in a research note on July 5 that cigarette volume declines have eased since April 1, suggesting retailers have gone back to ordering cigarettes and consumers have adjusted to the higher prices that include the new tax. Yet smokeless tobacco trends appear to have softened, Hong wrote. Stifel Nicolaus & Co. analyst Christopher Growe wrote in a note to investors on June 30 that U.S. tobacco profits are improving in the short term but could be challenged by additional state excise tax increases, Food and Drug Administration regulation and smoking bans. WHAT'S AHEAD: The entire industry continues to see the impact of the FDA's new authority to regulate tobacco. It is believed that tighter regulations on marketing and new product introductions could hurt Philip Morris USA least because they could cement its position as the market's leader. Despite a ban on flavored cigarettes, companies will be able to continue producing menthol cigarettes like Lorillard's popular Newport brand. Wall Street will be looking at how further smoking bans, tax increases and regulation could affect cigarette volumes and profitability. STOCK PERFORMANCE: During the quarter that ended June 30, shares of Lorillard rose about 9.8 percent to $66.77. Over the previous 52 weeks, the stock traded between $52.50 and $77.39. Enditem