Lorillard, Inc. (LO) carried its momentum into the fourth quarter and reported fourth quarter earnings per share of $1.74, beating the Zacks Consensus Estimate by 4%. It was the cigarette maker’s fifth consecutive positive earnings surprise.
The company produces strong and stable cash flows and has been rewarding shareholders through stock buy backs and dividend increases. It currently yields a hefty 6.6%.
Fourth Quarter Results
Lorillard reported its results for the fourth quarter on February 7. Net sales were up 9.4% year-over-year driven by a 4.5% increase in total wholesale shipment volume.
The gross margin expanded in the quarter from 51.6% of sales to 52.7%. Operating income was up just 8.8%, however, due to higher legal and compensation costs.
Earnings per share came in at $1.74, beating the Zacks Consensus Estimate by 7 cents. It was a 14.5% increase over the same quarter in 2009 thanks in part to the company’s aggressive share repurchase program.
Estimates Rising
Analysts revised their estimates higher for both 2011 and 2012 following the strong quarter. The Zacks Consensus Estimate for 2011 is $7.47, representing 10% growth over 2010.
The 2012 estimate is also 10% higher at $8.22. It is a Zacks #2 Rank (Buy) stock.
Returning Value to Shareholders
Despite all of the various legal costs, Lorillard produces strong free cash flow and has been rewarding shareholders quite generously. For one, it recently announced that it was raising its dividend again by 16%. This marks the second hike in three quarters.
It currently yields a juicy 6.6%.
The company has also been aggressively buying back its own stock. Between August 20, 2010 and December 31, 2010 the company spent $376 million buying back approximately 4.5 million shares. It has $624 million remaining under its current share repurchase program as of December 31, 2010.
Shares trade at 10.7x forward earnings, a discount to the industry average of 11.8x. Its price to free cash flow ratio of 12.1x is also below its peers at 14.7x.
Company Description
Lorillard is the third largest cigarette company in the United States. It is also older than the United States, having been founded in 1760. The company is based in Greensboro, North Carolina and has a market cap of $12.0 billion.
It sells cigarettes under six brands: Newport (its flagship), Kent, True, Maverick, Old Gold, and Max. Lorillard was spun off from parent Loews Corporation in 2008.
Read the September 22 article here.
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Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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