Lorillard Inc. (LO), the third largest manufacturer of cigarettes in the United States, posted second quarter earnings of $1.73 per share, up 1.2% compared with $1.71 per share in the year-ago period. Earnings were above the Zacks Consensus Estimate of $1.61.
On a year-ago basis, net sales for the quarter (including excise) increased by a million to $1,520 million. However, excluding such taxes, sales for the quarter moved up 0.5% to $1,038 million compared with $1,033 million in the year-ago quarter, reflecting higher average prices, partly offset by a decline in sales volume and an increase in promotional expenses.
In the quarter, total wholesale shipment volume decreased 0.9% to 9.785 billion units. Compared with the wholesale shipments dip of about 7.1% in the domestic industry, Lorillard’s domestic wholesale shipments slipped only 0.6% in the quarter, partly due to elevated volumes of wholesale inventory replenishment in the year-ago quarter immediately prior to the federal excise tax increase on April 1, 2009.
However, the retail market share of its Newport business continued to increase during the quarter by 0.50 share points to 10.9% from 10.4% in the prior-year quarter.
Gross margin, calculated using net sales excluding excise taxes, contracted to 52.2% compared with 53.4% in the second quarter of 2009, representing higher costs related to the State Settlement Agreements and the Federal Assessment for Tobacco Growers and the assessment of Food and Drug Administration fees. Operating margin also tapered 120 basis points to 42.9% in the reported period from 44.1% in the prior-year quarter.
During the quarter, Lorillard completed $1 billion debt offering including $750 million of senior notes due 2020 and $250 million of senior notes due 2040. At an average share purchase price of $76.88, Lorillard repurchased about 1.8 million shares and paid a cash dividend of $1.00 per share in the quarter. Lorillard exited the quarter with cash and cash equivalents of $1,791 million and long-term debt of $1,785 million.
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