Lorillard Inc. (LO) reported results for the third quarter of fiscal 2009 with earnings of $1.44 per share. Although earnings were below the Zacks Consensus Estimate of $1.52, they were up 4.3% year over year.

Net sales for the quarter (including the excise tax) increased 26.1% year over year, primarily driven by the increase in federal excise taxes. However, excluding the excise tax, sales for the quarter increased only 1.8% to $953 million as the benefit of higher average prices were partially offset by lower volumes.

For the quarter, total wholesale shipment volume declined 6.3% to 9.458 billion units, while total domestic industry wholesale shipments declined approximately 12.6%. The company’s domestic wholesale shipments decreased 6.1%, reflecting the impact of the 62-cent increase in the federal excise tax on cigarettes.

Newport’s domestic wholesale shipments declined 9.8%, while Maverick’s domestic shipments increased 51.9% during the quarter. However, the retail market share of Newport continued to increase during the quarter by 0.28 share points to 10.29%.

Gross margin for the quarter expanded 100 basis points (bps) to 51.2% versus 50.2% in the comparable prior-year quarter. The increase was primarily attributable to the absence of free product promotions and lower costs related to the State Settlement Agreements, which were partially offset by higher manufacturing costs. The operating margin for the quarter expanded 32 bps to 41.1% from 40.8% in the comparable prior-year quarter.

Interest expense for the quarter increased $14 million on account of the Senior Notes issued in the second quarter of 2009.

The company has cash and cash equivalents of $1.5 billion and a debt-to-capitalization ratio of 66%.

During the quarter, the Board of Directors approved an 8.7% increase in the quarterly dividend from 92 cents per share to $1.00 per share. The dividend was payable on Sept. 11, 2009 to stockholders of record as of Sept. 1, 2009.

In addition, during the quarter the Board of Directors also approved an additional share repurchase program, authorizing the company to repurchase up to $750 million of its outstanding common stock. This share repurchase program was in addition to the $250 million share repurchase program announced on May 21, 2009.
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