), delivered second-quarter 2013 adjusted earnings of 81 cents
per share, which exceeded the prior-year quarter's earnings of 73
cents by 11.0% and the Zacks Consensus Estimate of 80 cents by a
The rising market shares of the company's brands, tight cost
control measures and success in the company's electronic
cigarette brand - Blu E-Cigs - proved to be Lorillard's strength
in the second quarter of 2013.
Net sales in the reported quarter went up 4.2% year over year
to $1.8 billion on the back of strong sales of electronic
cigarettes. Revenues were way ahead of the Zacks Consensus
Estimate of $1.3 billion.
Net sales of the cigarette segment inched up 1.4% to $1.74
billion due to higher average net cigarette selling prices partly
offset by lower cigarette unit sales volume. Total wholesale
cigarette volumes decreased 1.7% to 10.44 units in the second
quarter including Puerto Rico and U.S. shipments.
In the reported quarter, Lorillard's domestic retail market
share climbed 0.6 share points to 14.9%, backed by strong gains
of the company's flagship brand - Newport - whose domestic retail
market share also increased 0.6 share points to 12.6%, driven by
increased promotional activity for the Newport Menthol launched
in the core markets.
Adjusted gross profit increased 6.2% to $649 million in the
quarter, owing to higher average net cigarette selling
Lorillard formed this segment following the acquisition of the
Blu E-Cigs brand on Apr 24, 2012. Net sales during the second
quarter were $57 million compared to $8 million in the comparable
The strong gains in sales were driven by higher Blu E-Cigs
sales achieved from marketing and expanded retail distribution.
In the second quarter, Blu E-Cigs retail market share was over
40% of the electronic cigarettes market.
Gross profit was $18 million compared to $1 million in the
prior year. Gross profit gain was partly offset due to launch of
new lower-priced on-the-go rechargeable pack during the
Other Financial Updates
On Jun 10, Lorillard paid a quarterly dividend of 55 cents to
stockholders of record as of May 31, 2013.
Apart from this, Lorillard amended its existing $500 million
share repurchase program and enhanced its share repurchase limit
by another $500 million. During the quarter, the company
repurchased approximately 3.9 million shares at a cost of $169
million under the $1 billion share repurchase program announced
in Mar 2013. The company has $791 million worth of shares
remaining under its share buyback program.
The Food and Drug Administration is expected to put a
ban on menthol flavored cigarettes as it has noted that it is
more lucrative to starters because of its smooth and cool taste.
Hence, it will lead to a rise in smoking population in the
nation. This is expected to affect LO's sales negatively in the
Overall, we are encouraged by the company's dominant share in
the market with rising popularity of its premium brand Newport
and value brand Maverick. Lorillard's Newport cigarette brand
continued to gain popularity even with higher cigarette pricing
amid overall slowdown in the cigarette industry. In addition, the
rising demand for electronic cigarettes is expected to boost Blu
E-Cigs sales, going forward.
Other Stocks to Consider
Lorillard carries a Zacks Rank #2 (Buy). Other diversified
retailers worth considering include
Flower Foods Inc.
Pilgrim's Pride Corp
Tyson Foods Inc.
). All these companies carry a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
LORILLARD CO (LO): Free Stock Analysis Report
PILGRIMS PRIDE (PPC): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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