Earnings Preview: Lorillard Inc. Third-Quarter

Source from:  AP 10/21/2011

RICHMOND, Va. (AP) - Lorillard Inc. is expected to report rising profit and revenue, despite falling cigarette sales nationwide, when it releases its third-quarter results Monday before the stock markets open. Lorillard is the third-biggest U.S. cigarette maker. WHAT TO WATCH FOR: Whether smokers bought more of Lorillard's top-selling Newport menthol brand and its Maverick discount brand. Last quarter, the nation's largest tobacco companies cautioned that third-quarter cigarette volume comparisons will be hurt because wholesalers stocked up more than usual in that period last year. Americans are in general buying fewer cigarettes because of tax hikes, smoking bans, health concerns and social stigma, but in recent quarters cigarette sales have risen for Lorillard. The two bigger U.S. tobacco companies - No. 1 Philip Morris USA, the maker of Marlboro, owned by Altria Group Inc., and No. 2 Reynolds American Inc., the maker of Pall Mall and Camel - have sold fewer cigarettes. The weak economy and high unemployment have caused some smokers to trade down to cheaper brands to save money. Lorillard's Maverick and Reynolds American's Pall Mall brands have been among the beneficiaries. Most tobacco companies have raised prices and cut costs to bolster profits as declining demand cuts into cigarette sales. The number of cigarettes Lorillard sold grew about 10 percent to nearly 10.8 billion cigarettes in the April-June quarter. Newport volumes rose 9.6 percent, while Maverick rose 21 percent. Total industry shipments dropped 1.3 percent. The U.S. market for menthol cigarettes, which Lorillard dominates with Newport, is still growing. Lorillard is battling to keep its roughly 36 percent share even as the brand's top competitors have ramped up efforts to grab some of the menthol market. Analysts also will look at the performance of the company's non-menthol version of Newport, which represented a bulk of the Newport increases in the second quarter. But the company noted that it has spent more promoting the new product, which was introduced last November. Lorillard, the oldest continuously operating U.S. tobacco company, spun off from Loews Corp. in 2008. Reynolds American is scheduled to report its third-quarter results on Tuesday, and Altria is set to release its results Thursday. WHY IT MATTERS: Continued strong performance by Maverick could mean smokers are still switching to cheaper brands to save money because they have less discretionary income, and that those who tried the brand during the recession are remaining loyal. But larger overall cigarette volumes for Lorillard could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes. Other companies are selling fewer cigarettes, but their revenue has risen with higher prices. WHAT'S EXPECTED: Analysts polled by FactSet expect adjusted earnings of $2.03 per share on revenue of $1.14 billion, excluding excise taxes. LAST YEAR'S QUARTER: Lorillard, which is based in Greensboro, N.C., reported net income of $1.81 per share on revenue of $1.07 billion, excluding excise taxes. Enditem