Lorillard Inc.
(
LO
) has delivered first quarter of 2012 adjusted earnings (excluding
the unfavorable tobacco settlement expenses) of $1.74 per share,
which exceeded the prior-year quarterly earnings of $1.71 per
share.
The results benefited from a decline in the number of
outstanding shares owing to the company's buyback program. However,
the results lagged the Zacks Consensus Estimate of $1.99 per share
due to a decline in sales growth.
Quarter in Detail
Net sales in the reported quarter declined 0.6% year over year
to $1.526 billion, but exceeded the Zacks Consensus Estimate of
$1.126 billion. Lower unit sales volume resulting from fluctuations
in the trade inventory pattern during the quarter, partially offset
the higher average prices which led to the sales decline.
Total wholesale shipment volume of Lorillard decreased 2.7% in
the first quarter including Puerto Rico and U.S. Possessions, while
total domestic wholesale shipments
excluding
Puerto Rico and U.S. Possessions increased 1.8%, excluding the
negative impact of wholesale inventory patterns.
Adjusting the effects of wholesale inventory pattern changes,
domestic wholesale shipments of Lorillard's flagship brand Newport
and its Maverick brand went up 0.5% and 12.5%, respectively.
Lorillard's domestic retail market share climbed 0.4 share
points in the reported quarter to a market share of 14.5%, while
Lorillard's domestic retail market share of the menthol market
climbed 1.0 share points in the reported quarter to a market share
of 40.0%. Newport's domestic retail market share escalated 0.2
share points to 12.2% in the first quarter of 2012, while Newport's
domestic retail market share of the Menthol segment escalated 0.5
share points to 36.8% in the quarter.
Lorillard's introduction of Newport Non-Menthol, expansion of
Newport Menthol and continued retail shipment growth on Maverick
contributed to the share gains in the quarter.
Adjusted gross profit contracted 70 basis points to 34.7%
compared with 35.4% in the first quarter of 2010, reflecting lower
sales, rising input costs, higher costs related to the State
Settlement Agreements and higher Food and Drug Administration user
fees. These factors also overshadowed the lower charges for the
Federal Assessment for Tobacco Growers.
Acquisition Update
Along with the earnings conference call, Lorillard has announced
the cash acquisition of all the assets of blu ecigs, a U.S.-based
electronic cigarette (e-cigarette) company, for $135 million. After
the acquisition, blu ecigs' management team will be retained by the
company. However, blu ecigs will be a separate operating company of
Lorillard and will be headquartered in Charlotte, NC.
blu ecigs look like traditional cigarettes, but do not
produce tobacco smoke, ash or smell. The company offers a new
technology to consumers and provides Lorillard with the leading
brand in the rapidly growing e-cigarette category.
Capital Structure
Lorillard ended the quarter with cash and cash equivalents of
$1.93 billion as compared to $1.63 billion at the end of the prior
quarter. Long-term debt was $2.586 billion at the end of March 31,
2012 as against $2.595 at the end of December 31, 2011.
During the quarter, Lorillard repurchased approximately 1.6
million shares at a cost of $188 million, completing the $750
million share repurchase program announced on August 12, 2011.
Lorillard, which competes with
Reynolds American Inc.
(
RAI
) and
Philip Morris Inc.
(
PM
), currently holds a Zacks #3 Rank (a short-term 'Hold'
rating).
LORILLARD CO (
LO
): Free Stock Analysis Report
PHILIP MORRIS (
PM
): Free Stock Analysis Report
REYNOLDS AMER (
RAI
): Free Stock Analysis Report
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