Lorillard 4th-quarter profit drops but beats analysts’ views; sales climb on price hikes

Lorillard 4Q profit falls on higher costs

RICHMOND, Va. — Lorillard Inc., the nation’s third-largest cigarette maker, saw less of a decline in cigarettes sold in the fourth quarter than its competitors. One of its value brands posted big gains and its Newport menthol brand stood up to heightened competition.

Still, Lorillard, whose other brands include Kent, True and Maverick, said Monday that its fourth-quarter profit fell as it faced higher manufacturing costs and other expenses.

The company, based in Greensboro, N.C., saw the number of cigarettes sold fall 4 percent during the period, compared with its estimate of a total industry decline of 7.4 percent.

Lorillard saw a 6.5 percent decline in volumes for its Newport brand, but a 39.7 percent increase in its value-priced Maverick brand. Some smokers have traded down to cheaper cigarette brands during the recession in an effort to cut spending.

Newport’s share of the U.S. menthol segment grew by .06 percentage points to 34.61 percent of the market.

Despite the Food and Drug Administration’s pending study on the public health impact of menthol, the segment is stronger than regular cigarettes in a shrinking market, and Lorillard’s top competitors — No. 1 Philip Morris USA, owned by Richmond, Va.’s Altria Group Inc., and No. 2 Reynolds American Inc., based in Winston-Salem, N.C. — have ramped up efforts to grab some of the menthol market.

While Chief Executive Martin L. Orlowsky acknowledged the other companies’ interest in menthol, he said in a conference call that none of the entries into the market have been “game-changers or factors of any consequence.”

Lorillard’s earnings dropped 6 percent to $242 million, or $1.52 per share. That narrowly beat the $1.51-per-share estimate of analysts surveyed by Thomson Reuters.

It said it had fewer shares outstanding in the current quarter, which boosted its earnings per share by 9 cents.

Sales climbed 27 percent to $1.38 billion. About $270 million of the growth was due to April’s 62 cents-per-pack federal excise tax increase. Excluding excise taxes, sales rose 2.2 percent to $932 million.

Lorillard, which was spun off from Loews Corp. in June 2008, said its revenue benefited from higher average prices, but that was somewhat offset by selling fewer cigarettes and spending more on promotions.

Its shares fell 70 cents to $73.80 in afternoon trading Monday.

Full-year profit climbed 7 percent to $948 million, or $5.76 per share.

Annual net sales rose 25 percent to $5.23 billion from $4.2 billion. Removing excise taxes, sales grew 5.6 percent to $3.69 billion.

Lorillard, the oldest continuously operating U.S. tobacco company, was the last of the country’s top tobacco companies to report its fourth-quarter results.

Results from the three tobacco makers, who account for about 90 percent of the U.S. cigarette market, show steep volume declines as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher.

Marlboro maker Altria Group shipped 11.4 percent fewer cigars and cigarettes. Reynolds American, which makes Camel and Pall Mall, saw volume decline 7.6 percent.

Those declines have have caused some tobacco companies to focus on cigarette alternatives — such as snuff and chewing tobacco — for sales growth.

Lorillard said Monday that it plans to enter the moist smokeless tobacco market, but did not elaborate. It also said it will discontinue a joint venture with Swedish Match for its Triumph Snus — small pouches like tea bags that users stick between the cheek and gum.

AP Business Writer Michelle Chapman in New York contributed to this report.