Cigarette maker Lorillard 2Q profit rises

RICHMOND, Va. (AP) ? Cigarette maker Lorillard Inc.’s second-quarter net income rose more than 10 percent as it sold more Newport and Maverick cigarettes at higher prices.

But the nation’s third biggest tobacco company cautioned in a conference call Monday that its third-quarter cigarette volume comparisons will be hurt because wholesalers stocked up more than usual in that period last year, and that in turn could hurt its profitability in the third quarter.

Lorillard has been spending heavily to promote its brands, especially on its recently introduced non-menthol version of Newport. The company offered no specific guidance for this quarter, as is its usual practice.

Its shares fell $5, or 4.4 percent, to end trading Monday at $107.29.

Citi Investment Research’s Vivien Azer said in a client note that the company’s shares have been under pressure from worries about growth slowing in the second half of the year but the sell-off is “overdone.”

Lorillard said its net income rose to $291 million, or $2.05 per share, for the period that ended June 30, up from $263 million, or $1.73 per share, a year earlier. The per-share figure was boosted by a lower number of shares outstanding.

Lorillard, based in Greensboro, N.C., said revenue excluding excise taxes increased nearly 12 percent to $1.16 billion.

Analysts polled by FactSet expected earnings of $2.02 per share on revenue of $1.15 billion.

The number of cigarettes Lorillard sold grew about 10 percent to nearly 10.8 billion cigarettes on gains of 9.6 percent from its Newport brand and about 21 percent for its lower-priced Maverick brand, while it estimated a 1.3 percent decline for the total industry.

The company said its non-menthol Newport cigarettes, introduced in November, represented the bulk of the increase in Newport shipments during the quarter, but it also noted the cost of promoting it impacted its revenue.

Rivals Reynolds American Inc. and Altria Group Inc. both reported selling fewer cigarettes in the quarter.

High unemployment and rising cigarette prices and taxes have caused many smokers to trade down to cheaper brands during the recession in a bid to save money. Lorillard’s Maverick and Reynolds American’s Pall Mall have been among the beneficiaries.

Most tobacco companies have been raising prices and cutting costs to keep profits up as the recession and declining demand cut into cigarette sales. Tax increases, smoking bans, health concerns and social stigma also have made the cigarette business tougher.

Lorillard’s retail market share increased 1.4 points during the quarter to 14.2 percent of the U.S. market. Newport’s share of the menthol market was stable at 36.6 percent, while its top competitors have ramped up efforts to grab some of the growing menthol market.

The company’s gross margin was down slightly to 35.4 percent due to promotional costs for Newport non-menthol.

In response to a shareholder question, the company said that despite discussions on a stock split, it has come to the conclusion that now is not the time.

Lorillard, the oldest continuously operating U.S. tobacco company, spun off from Loews Corp. in 2008.

It is the last of the country’s top tobacco companies to report second-quarter results.

No. 1 Altria Group, parent company of Marlboro maker Philip Morris USA, said that, while cigarette sales fell slightly, it was getting higher prices. The top-selling Marlboro brand also lost market share.

No. 2 Reynolds American’s said it sold fewer cigarettes, but was able to command higher prices and benefited from its smokeless tobacco products. Shipments of its Pall Mall brand grew 15 percent and the brand’s U.S. market share grew 1.5 percentage points to 8.5 percent.


Michael Felberbaum can be reached at