Mixed 3Q for Lorillard

Zacks

Lorillard Inc. (LO) delivered third quarter 2012 adjusted earnings (excluding expenses incurred in conjunction with the acquisition of blu ecigs) of $2.17 per share, which exceeded the prior-year quarterly earnings of $1.94 per share by 11.9%.

The results benefited from higher sales and a lower share count, owing to the company’s buyback program. However, results lagged the Zacks Consensus Estimate of $2.24 per share.

Quarter in Detail

Net sales in the reported quarter went up 2.4% year over year to $1.66 billion on the back of higher cigarette pricing offsetting lower cigarette volumes. Revenue surpassed the Zacks Consensus Estimate of $1.21 billion.

Total wholesale cigarette volume decreased 2.1% in the third quarter including Puerto Rico and U.S. shipments, while total domestic wholesale shipments excluding Puerto Rico and U.S. Possessions slipped 2.1% year over year.

In the reported quarter, Lorillard's domestic retail market share climbed 0.2 share points to 14.4%, whereas Lorillard's domestic retail market share of the menthol market further strengthened 0.5 share points to 39.6%.

Domestic retail market share of the company’s flagship brand Newport jumped 0.2 share points to 12.1% in the third quarter of 2012. Likewise, Newport's share of the menthol market also increased 0.3 share points to 36.4%.

Both Newport's total unit volume and domestic volume slipped 2.3% in the quarter. Domestic wholesale shipments for the company's leading discount brand Maverick climbed 1.1% in the quarter.

Gross profit margin expanded 150 basis points year over year to 36.2% of net sales, driven by higher pricing per cigarette. Gross profit went up to $602.0 million compared with $563.0 million in the third quarter of 2011, reflecting higher sales offset by higher costs of raw material.

Other Financial Update

Lorillard ended the quarter with cash and cash equivalents of $1.72 billion compared with $946 million at the end of the prior quarter. Long-term debt was $3.1 billion at the end of September 30, 2012 as against $2.6 billion at the end of June 30, 2012.

The company paid a dividend of $1.55 per share on September 10 to shareholders of record as of August 31, 2012. Lorillard also repurchased approximately 0.7 million shares at a cost of $86 million under its $500 million buyback program.

Lorillard, which competes with Reynolds American Inc. (RAI) and Philip Morris International Inc. (PM), currently holds a Zacks #3 Rank (a short-term Hold rating).

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