We reaffirm our Neutral recommendation on
) despite solid second quarter 2013 results owing to concerns
about the continued slowdown in the cigarette industry.
Why the Reiteration?
Lorillard's second quarter earnings of $0.81 per share
exceeded the prior-year earnings by 11.0%. It also beat the Zacks
Consensus Estimate by a penny. The rising market share of the
company's brands, tight cost control measures and success of the
company's electronic cigarette brand - blu e-Cigs - proved to be
Lorillard's strength in the second quarter of 2013.
Net sales increased 4.2% from the prior-year period on the
back of higher sales of electronic cigarettes. It also beat the
Zacks Consensus Estimate.
We are encouraged by the company's dominant share in the
cigarettes market with the rising popularity of its Newport and
Maverick brands, despite slowdown in the cigarette industry.
Lorillard's Newport brand has been able to increase its domestic
market share since 2009, even with higher cigarette pricing. The
strength of the brand has enabled the company to charge premium
prices, resulting in profitability.
Moreover, Lorillard is adapting to changing consumer demands
owing to increasing health consciousness among the youth, which
has reduced the demand for tobacco over time. With the
acquisition of the e-cigarette brand blu e-Cigs in Apr 2012, the
company has expanded its footprint in the profitable electronic
cigarettes market. The company has also launched a rechargeable
kit for e-cigarette users in the second quarter and plans to
introduce e-cigarettes in Canada in the third quarter of
However, Lorillard has been witnessing a decline in cigarette
volumes since the past many quarters. The slowdown in the tobacco
industry, increasing health consciousness among consumers and
significantly higher prices of cigarettes has impacted volumes.
Moreover, the industry deals with increased regulation on
packaging (graphic warning labels) in some international markets
and heightened Food and Drug Administration (FDA) concerns about
the effect of menthol cigarettes and electronic cigarettes.
Lorillard holds a Zacks Rank #3 (Hold). Other consumer staples
stocks that warrant a look are
Pinnacle Foods Inc
Green Mountain Coffee Roasters Inc
Dole Food Co. Inc.
). While Pinnacle Foods and Green Mountain hold a Zacks Rank #1
(Strong Buy), Dole Food hasa Zacks Rank #2 (Buy).
DOLE FOOD CO (DOLE): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
LORILLARD CO (LO): Free Stock Analysis Report
PINNACLE FOODS (PF): Free Stock Analysis
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