US: Lorillard 3rd-Quarter Net Rises 6% on Higher Margins

Source from:  Fox Business 10/25/2012

Lorillard Inc.'s (LO) third-quarter earnings rose 6%, as margins jumped due to higher cigarette prices and cigarette shipments fell less than the broader industry's decline. The No. 3 U.S. cigarette producer by revenue, which sells Newport products, reported total wholesale shipments fell 2.1%. Domestic wholesale shipments, which exclude Puerto Rico and U.S. possessions, were also down 2.1%. Shipments during the period were hurt by one fewer shipping day than in the prior-year period. Though Lorillard's shipments have dropped each quarter this year after growing for most of 2010 and 2011, the company continued to outperform the industry. Reynolds American Inc. (RAI) Tuesday reported a 6.9% volume drop, worse than the industry's 2.7% decline. Altria Group Inc. (MO), which has been gaining market share this year as it focuses on bolstering volume by offering promotional prices, is due to report results Thursday. Lorillard's results were mixed, with the top line exceeding Wall Street's expectations but profit falling short. The company's stock was down 4.2% to $110.87 in premarket trading. The tobacco companies face a difficult operating environment, as cigarette volumes have been declining for years and a weak economy and high unemployment continue to pressure consumers' disposable income. The major players have responded to the volume decline by enacting price increases and cutting costs to bolster profitability. Lorillard's average net price per cigarette unit jumped 5.4% in the quarter. Lorillard dominates the market for menthol cigarettes, which are popular among younger smokers. Its success in the menthol market--which makes up roughly 31% of domestic tobacco volume--has drawn Altria and Reynolds American to launch new menthol variations. Earlier this year, Lorillard said stalled regulatory action by the U.S. Food and Drug Administration has hindered the company's ability to bring new products to market this year. Lorillard's main competitors were able to launch new variations that had already been in test markets prior to the FDA being given jurisdiction of a variety of tobacco products as part of a law that was signed in 2009. Lorillard reported a profit of $283 million, or $2.16 a share, up from $267 million, or $1.94 a share, a year earlier. Excluding items such as acquisition costs, per-share earnings were $2.17 in the most-recent quarter. Sales jumped 2.4% to $1.66 billion. Analysts polled by Thomson Reuters had most recently forecast earnings of $2.23 a share on revenue of $1.2 billion. Gross margin improved to 36.2% from 34.7%. Sales volume for Lorillard's Newport brand, which represents the bulk of its sales, declined 2.3%, and its domestic retail market share increased to 12.1% from 11.9% last year. Lorillard is also making a push into the fast-growing electronic-cigarettes market with its $135 million acquisition of blu eCigs in April. That business contributed $14 million to Lorillard's net sales for the quarter. Chairman and Chief Executive Murray Kessler said Lorillard will ramp up investment behind blu eCigs to boost national retail distribution. The company has already began a new ad campaign and retail rollout effort. The company repurchased $86 million in shares during the quarter under a $500 million buyback program it unveiled in August. Dividend yields and strong cash flows drew investors to tobacco stocks last year, though the sector's shares have suffered a pullback in recent months and are underperforming the Standard & Poor's 500's gain in 2012. Enditem