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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