Cigarette company Lorillard Inc (LO) is set to report its first quarter 2014 results on Apr 24 before the market opens. Last quarter, it posted a 3.53% negative surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
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 – have proved to be Lorillard's strength. Higher sales of electronic cigarettes have been driving the company’s sales since the last one year. The company beat expectations in three out of the four quarters of 2013.
Though Lorillard has been witnessing a decline in cigarette volumes for quite some time now, we are encouraged by the company’s dominant share in the market. This is primarily attributable to its flagship brand Newport and the launch of several new products, primarily new varieties under the Newport brand. We expect innovation to boost sales in the upcoming quarter as well.
Lorillard is also quite well placed in the electronic cigarette industry and the acquisition of e-cigarette brands blu e-Cigs (Apr 2012) and SKYCIG (Oct 1, 2013) have further boosted Lorillard’s sales. In addition, the company has been striving to expand the distribution of e-cigarettes across stores in the U.S. and Canada.
Though sales of e-cigarette have been strong so far, they are now being considered by both the French and EU governments as tobacco products and will thus face the same restrictions as tobacco products, which might impact the e-cigarette business of the company.
Lorillard is also facing the brunt of increased regulation on cigarette packaging (graphic warning labels) and heightened Food and Drug Administration (FDA) concerns about the effects of menthol and electronic cigarettes, which may continue to hurt in the upcoming quarter.
Earnings Whispers?
Our proven model does not conclusively show that Lorillard is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:
Zacks ESP:The Earnings ESP is 0.00%.
Zacks Rank #2 (Buy):Lorillard’s Zacks Rank #2 (Buy) when combined with an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer staples sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Philip Morris International, Inc.(PM) with Earnings ESP of +0.81% and a Zacks Rank #2.
General Mills, Inc.(GIS) with Earnings ESP of +2.86% and a Zacks Rank #3 (Hold).
The J.M. Smucker Co.(SJM) with Earnings ESP of +1.72% and a Zacks Rank #3.
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