Lorillard Inc. (LO) reported results for the second quarter of fiscal 2011 with earnings of $1.91 per share, missing the Zacks Consensus Estimate of $2.02 per share. However, the results exceeded the prior-year earnings of $1.73 per share.
The adjusted earnings in the second quarter of 2011 exclude the benefit of 14 cents owing to the share repurchase program of Lorillard, which also resulted in lower outstanding shares.
Including the benefit of the share repurchase program, Lorillard posted earnings of $291 million, or $2.05 per share in the second quarter of 2011, up from the net income of $263 million, or $1.73 per share in the prior-year quarter.
The improved results were due to the impact of the new strategic growth initiatives, supported by the successful introduction of Newport Non-Menthol.
Quarter in Detail
Net sales (excluding excise taxes) for the reported quarter increased 11.7% year over year to $1.159 billion, exceeding the Zacks Consensus Estimate of $1.148 billion.
Lorillard’s net sales (including excise taxes) for the quarter increased 11.3% year over year to $1.69 billion, on the back of higher unit sales volume and higher average prices, partially offset by higher sales promotion costs primarily driven by the introduction of Newport Non-Menthol.
Total wholesale shipment volume of Lorillard increased 9.9% to 10.8 billion units, including Puerto Rico and U.S. Possessions, while total domestic wholesale shipments, excluding Puerto Rico and U.S. Possessions rose 10.4%.
Domestic wholesale shipments for Lorillard’s Newport increased 9.6% year over year, while the company’s domestic wholesale shipments for Maverick increased 21.2% in the second quarter of 2011.
Total cigarette industry domestic wholesale shipments plummeted approximately 1.3% in the second quarter of 2011.
Lorillard’s domestic retail market share climbed 1.4 share points in the reported quarter to a market share of 14.2%, while Newport’s domestic retail market share escalated 1.1 share points to 12.0% in the second quarter of 2011.
Gross margin plunged 30 basis points (bps) to 35.4% compared with 35.7% in the second quarter of 2010. Gross profit increased to $599 million in the reported quarter from the $542 million in the prior-year quarter, driven by the increase in net sales, partially offset by higher costs related to the State Settlement Agreements and the Federal Assessment for Tobacco Growers and higher Food and Drug Administration user fees.
Capital Structure
Lorillard ended the quarter with cash and cash equivalents of $1.15 billion and long-term debt of $1.78 billion.
During the second quarter of 2011 Lorillard also repurchased 4.5 million shares for $494 million.
Lorillard competes with Reynolds American Inc. (RAI), which reported its fourth-quarter 2011 results on July 22, 2011, missing the Zacks Consensus Estimate by 3 cents. However, it inched up 1.5% compared with the prior-year quarter.
Another peer, Altria Group Inc. (MO) posted earnings of 53 cents per share in line with the Zacks Consensus Estimate in the second quarter of 2011 and was also up 6.0% from the prior-year quarter.
