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Lorillard, Inc. Reports Second Quarter 2011 Results

July 25, 2011

GREENSBORO, N.C., July 25, 2011 /PRNewswire/ — Lorillard, Inc. (NYSE: LO) announced today results for the quarter ended June 30, 2011.

Highlights

  • Second quarter 2011 earnings per diluted share increased 18.5% versus last year to $2.05.
  • Second quarter 2011 operating income increased 9.4% from last year to $487 million.
  • Second quarter 2011 net sales increased 11.3% from last year to $1.692 billion.
  • Second quarter 2011 Lorillard domestic wholesale shipments increased 10.4% versus last year compared to a 1.3% decline in industry domestic wholesale shipments.
  • Total Lorillard retail market share for the second quarter 2011 increased 1.4 percentage points versus last year to 14.2%.
  • Total Newport retail market share for the second quarter 2011 increased 1.1 percentage points versus last year to 12.0%.
  • Lorillard repurchased 4.5 million shares during the quarter at a cost of $494 million.

“Lorillard delivered strong second quarter results, despite the difficult macro-economic conditions. These results continue to demonstrate the fundamental strength of our brands and our organization,” said Murray S. Kessler, Chairman, President and Chief Executive Officer. “We are particularly pleased with the impact of our new strategic growth initiatives, highlighted by the successful introduction of Newport Non-Menthol.”

Second Quarter 2011 Results

Net sales increased $172 million to $1.692 billion in the second quarter of 2011, compared to $1.520 billion in the second quarter of 2010, an increase of 11.3%. The increase resulted from higher unit sales volume and higher average prices, partially offset by higher sales promotion costs primarily driven by the introduction of Newport Non-Menthol.

Gross profit was $599 million in the second quarter of 2011, or 35.4% of net sales, compared to $542 million, or 35.7% of net sales, in the second quarter of 2010. The increase in gross profit reflects 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.

Total Lorillard wholesale shipment volume for the second quarter of 2011, which includes Puerto Rico and U.S. Possessions, increased 9.9% compared to the second quarter of 2010 to 10.8 billion units. Lorillard’s domestic wholesale shipments, which exclude Puerto Rico and U.S. Possessions, increased 10.4% for the same period. Domestic wholesale shipments for Newport, the Company’s flagship brand, increased 9.6%, while domestic wholesale shipments for Maverick, the Company’s leading discount brand, increased 21.2% in the second quarter of 2011 compared to the second quarter of 2010. Shipments of Newport Non-Menthol, the most recent Newport line extension launched in the fourth quarter of 2010, represented the bulk of the increase in Newport domestic wholesale shipments during the second quarter. Total cigarette industry domestic wholesale shipments decreased an estimated 1.3% for the second quarter of 2011 compared to the second quarter of 2010. Adjusting for changes in wholesale inventory patterns, Lorillard domestic wholesale shipments increased an estimated 8.1% for the second quarter of 2011. See attached table for details of Lorillard’s wholesale shipments.

Based on Lorillard’s proprietary retail shipment data (“Excel”), which measures shipments from wholesale to retail, Lorillard’s domestic retail market share once again posted gains in the second quarter of 2011, increasing 1.4 share points to a market share of 14.2%. Newport’s domestic retail market share reached 12.0% during the second quarter of 2011, an increase of 1.1 share points compared to the second quarter of 2010.

Selling, general and administrative costs increased $15 million to $112 million in the second quarter of 2011 compared to the second quarter of 2010 primarily as a result of higher legal costs related to the Engle Progeny litigation. In addition, certain other selling, general and administrative costs increased due to higher marketing and other costs related to the Company’s strategic initiatives, including market research and advertising support of Newport Non-Menthol.

Lorillard’s effective income tax rate was 36.6% in the second quarter of 2011 compared to 37.1% in the second quarter of 2010. The decrease is primarily due to state tax law changes enacted during the second quarter of 2011 and the settlement of certain state and federal tax matters.

Net income in the second quarter of 2011 was $291 million, or $2.05 per share (basic and diluted), compared to $263 million, or $1.73 per share (basic and diluted), in the second quarter of 2010. The 18.5% increase in earnings per diluted share for the second quarter includes the benefit of the Company’s share repurchase program which resulted in lower outstanding shares, and contributed $0.14, or 8.0 percentage points, to the increase in earnings per share.

First Half 2011 Results

Net sales were $3.227 billion in the first half of 2011, compared to $2.879 billion in the first half of 2010, an increase of 12.1%. The increase resulted from higher unit sales volume and higher average prices, partially offset by higher sales promotion costs primarily driven by the introduction of Newport Non-Menthol.

Gross profit was $1.142 billion in the first half of 2011, or 35.4% of net sales, compared to $1.019 billion, or 35.4% of net sales, in the second quarter of 2010. The increase in gross profit reflects 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.

Total Lorillard wholesale shipment volume for the first half of 2011, which includes Puerto Rico and U.S. Possessions, increased 9.7% compared to the first half of 2010 to 20.5 billion units. Lorillard’s domestic wholesale shipments, which exclude Puerto Rico and U.S. Possessions, increased 9.9% for the same period. Domestic wholesale shipments for Newport, the Company’s flagship brand, increased 8.9%, while domestic wholesale shipments for Maverick increased 21.9% in first half of 2011 compared to the first half of 2010. Total cigarette industry domestic wholesale shipments decreased an estimated 2.3% for the first half of 2011 compared to the first half of 2010. See attached table for details of Lorillard’s wholesale shipments.

Selling, general and administrative costs increased $42 million, or 21.9% in the first half of 2011 to $234 million compared to the first half of 2010. The increase in the first half of 2011 is primarily a result of higher legal costs related to the Engle Progeny litigation. In addition, certain other selling, general and administrative costs increased due to higher administrative costs incurred in support of strategic initiatives, including market research and advertising costs related to the support of Newport Non-Menthol, as well as costs incurred in support of the Company’s position and industry reports to the FDA regarding the use of Menthol in cigarettes.

Interest expense increased $19 million in the first half of 2011 compared to the first half of 2010 and reflects interest on the Senior Notes issued in the second quarter of 2010.

Lorillard’s effective income tax rate was 36.8% in the first half of 2011 compared to 37.4% in the first half of 2010. The decrease is primarily due to an unfavorable adjustment in the first quarter of 2010 from the impact of the repeal of future tax deductions for Medicare Part D subsidies for retiree drug benefits pursuant to the health care reform legislation enacted in the first quarter of 2010, as well as state tax law changes enacted during the second quarter of 2011 and the settlement of certain state and federal tax matters.

Net income in the first half of 2011 was $539 million, or $3.75 per share basic and diluted, compared to $495 million, or $3.23 per share basic and $3.22 per share diluted in the first half of 2010. The 16.5% increase in earnings per diluted share for the first half of 2011 includes the benefit of the Company’s share repurchase program which resulted in lower outstanding shares, and contributed $0.24, or 7.5 percentage points, to the increase in earnings per share.

Additional News

On May 19, 2011, Lorillard, Inc. announced that its Board of Directors approved a quarterly dividend on its common stock of $1.30 per share. The dividend was payable on June 10, 2011 to shareholders of record as of June 1, 2011.

Also on May 19, 2011, Lorillard Inc. announced that its Board of Directors amended the $1 billion repurchase program announced on August 20, 2010 to repurchase in the aggregate up to $1.4 billion of its outstanding common stock. During the second quarter of 2011, the Company repurchased approximately 4.5 million shares at a cost of $494 million. As of June 30, 2011, the maximum dollar value of shares that could yet be purchased under the program was $241 million.

Conference Call

A conference call to discuss the second quarter 2011 results of Lorillard, Inc. has been scheduled for 9:00 a.m. Eastern Daylight Time on Monday, July 25, 2011. A live broadcast of the call will be available online at the Lorillard, Inc. website (www.lorillard.com). Please go to the website at least ten minutes before the event begins to register and to download and install any necessary audio software.

Those interested in participating in the question and answer session of the conference call should dial (888) 239-6824 (domestic) or (706) 902-3787 (international). The passcode for this event is: 82413734.

An online replay will be available at the Company’s website following the call. If you wish to listen to the replay of this conference call, please visit Lorillard’s website at www.lorillard.com or dial (800) 642-1687 (domestic) or (706) 645-9291 (international) and enter passcode: 82413734. The conference call will be available for replay in its entirety through August 1, 2011.

About Lorillard, Inc.

Lorillard, Inc. (NYSE: LO), through its Lorillard Tobacco Company subsidiary, is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard’s flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport, the Lorillard product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five brands include 43 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, North Carolina.

Forward-Looking Statements

Certain statements made in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “may,” “will be,” “will continue,” “will likely result” and similar expressions. In addition, any statement that may be provided by management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible actions by Lorillard, Inc. are also forward-looking statements as defined by the Reform Act.

Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. Information describing factors that could cause actual results to differ materially from those in forward-looking statements is available in Lorillard, Inc.’s filings with the Securities and Exchange Commission (the “SEC”), including but not limited to, our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available from the SEC over the Internet or in hard copy, and are available on our website at www.lorillard.com. Forward-looking statements speak only as of the time they are made, and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.

    Lorillard, Inc. and Subsidiaries
    Consolidated Condensed Statements of Income
                                                           Three Months
                                                           ------------
                                                          Ended June 30,
                                                          --------------
                                                         2011            2010
                                                         ----            ----

    (Amounts in millions, except per
     share data)                                            (Unaudited)

    Net sales (a)                                      $1,692          $1,520
    Cost of sales (a) (b)                               1,093             978
                                                        -----             ---
    Gross profit                                          599             542
    Selling, general and
     administrative                                       112              97
                                                          ---             ---
    Operating income                                      487             445
    Investment income                                       1               1
    Interest expense                                      (28)            (28)
                                                          ---             ---
    Income before income taxes                            460             418
    Income taxes                                          169             155
                                                          ---             ---
    Net income                                           $291            $263
                                                         ====            ====

    Earnings per share:
      Basic                                             $2.05           $1.73
      Diluted                                           $2.05           $1.73

    Weighted average number of shares
     outstanding:
      Basic                                            141.79          152.04
      Diluted                                          141.96          152.22

    Supplemental information:
    (a)     Includes excise taxes.                       $533            $482

    (b)     Cost of sales includes:

              -Charges to accrue obligations
               under the
                 State Settlement Agreements.             353             311

              -Charges to accrue obligations
               under the
                 Federal Assessment for Tobacco
                  Growers.                                 33              30

              -Charges to accrue Food and Drug
                      Administration user fees.            15               7


                                                        Six Months
                                                      Ended June 30,
                                                  2011            2010
                                                  ----            ----

    (Amounts in millions, except per
     share data)                                     (Unaudited)

    Net sales (a)                               $3,227          $2,879
    Cost of sales (a) (b)                        2,085           1,860
                                                 -----           -----
    Gross profit                                 1,142           1,019
    Selling, general and
     administrative                                234             192
                                                   ---             ---
    Operating income                               908             827
    Investment income                                2               1
    Interest expense                               (56)            (37)
                                                   ---             ---
    Income before income taxes                     854             791
    Income taxes                                   315             296
                                                   ---             ---
    Net income                                    $539            $495
                                                  ====            ====

    Earnings per share:
      Basic                                      $3.75           $3.23
      Diluted                                    $3.75           $3.22

    Weighted average number of shares
     outstanding:
      Basic                                     143.28          153.29
      Diluted                                   143.57          153.46

    Supplemental information:
    (a)     Includes excise taxes.              $1,012            $919

    (b)     Cost of sales includes:

              -Charges to accrue obligations
               under the
                 State Settlement Agreements.      673             588

              -Charges to accrue obligations
               under the
                 Federal Assessment for Tobacco
                  Growers.                          63              56

              -Charges to accrue Food and Drug
                      Administration user fees.     30              14

    Lorillard, Inc. and Subsidiaries
    Consolidated Condensed Balance Sheets
                                                June 30, December 31,
                                                -------- ------------
                                                    2011       2010
                                                     ---        ---
    (In millions)                                (Unaudited)
    Assets:
    Cash and cash equivalents                     $1,154              $2,063
    Accounts receivable, less allowances
     of $3 and $3                                     17                   9
    Other receivables                                 14                  68
    Inventories                                      319                 277
    Deferred income taxes                            507                 503
    Other current assets                             106                  15
                                                     ---                 ---
        Total current assets                       2,117               2,935
    Plant and equipment, net                         250                 243
    Prepaid pension assets                            66                  66
    Deferred income taxes                              9                   6
    Other assets                                      56                  46
                                                     ---                 ---
        Total assets                              $2,498              $3,296
                                                  ======              ======

    Liabilities and Shareholders'
     Deficit:
    Accounts and drafts payable                      $39                 $27
    Accrued liabilities                              433                 333
    Settlement costs                                 734               1,060
    Income taxes                                       7                   6
                                                     ---                 ---
        Total current liabilities                  1,213               1,426
    Long-term debt                                 1,780               1,769
    Postretirement pension, medical and
     life insurance benefits                         287                 284
    Other liabilities                                 49                  42
                                                     ---                 ---
        Total liabilities                          3,329               3,521
                                                   -----               -----
    Commitments and Contingent
     Liabilities

    Shareholders' Deficit:

    Preferred stock, $0.01 par value,
     authorized 10 million shares                      -                   -
    Common stock:
           Authorized - 600 million shares; par
            value-$0.01 per share
           Issued - 175 million and 174 million
            shares
           Outstanding - 139 million and 147
            million shares                             2                   2
    Additional paid-in capital                       256                 242
    Retained earnings                              1,832               1,666
    Accumulated other comprehensive loss            (112)               (109)
    Treasury stock at cost, 35 million
     and 27 million shares                        (2,809)             (2,026)
                                                  ------              ------
        Total shareholders' deficit                 (831)               (225)
                                                    ----                ----
        Total liabilities and shareholders'
         deficit                                  $2,498              $3,296
                                                  ======              ======

    Lorillard, Inc. and Subsidiaries
    Wholesale Shipments

    Information regarding unit volume shipped by Lorillard Tobacco
    Company to its direct buying customers by brand follows:
                                         Three Months
                                        Ended June 30,
                                        --------------
    (All units in thousands)             2011           2010     % Chg
    ------------------------             ----           ----     -----

    Full Price Brands

    Total Newport                   8,982,225      8,194,823        9.6
    Total Kent Family                  54,864         66,612      -17.6
    Total True                         57,360         67,662      -15.2
    Total Max                               -          4,689     -100.0
                                          ---          -----     ------

    Total Full Price Brands         9,094,449      8,333,786        9.1
                                    ---------      ---------        ---

    Price/Value Brands

    Total Old Gold                    139,812        143,130       -2.3
    Total Maverick                  1,363,380      1,125,030       21.2
                                    ---------      ---------       ----

    Total Price/Value Brands        1,503,192      1,268,160       18.5
                                    ---------      ---------       ----

    Total Domestic Cigarettes      10,597,641      9,601,946       10.4

    Total Puerto Rico and
     U.S. Possessions                 156,816        182,766      -14.2
                                      -------        -------      -----

    Grand Total                    10,754,457      9,784,712        9.9
                                   ==========      =========        ===


                                          Six Months
                                        Ended June 30,
                                        --------------
    (All units in thousands)             2011            2010     % Chg
    ------------------------             ----            ----     -----

    Full Price Brands

    Total Newport                  17,096,265      15,704,728        8.9
    Total Kent Family                 105,096         130,260      -19.3
    Total True                        109,914         130,661      -15.9
    Total Max                               -           8,751     -100.0
                                          ---           -----     ------

    Total Full Price Brands        17,311,275      15,974,400        8.4
                                   ----------      ----------        ---

    Price/Value Brands

    Total Old Gold                    272,802         248,700        9.7
    Total Maverick                  2,537,400       2,081,508       21.9
                                    ---------       ---------       ----

    Total Price/Value Brands        2,810,202       2,330,208       20.6
                                    ---------       ---------       ----

    Total Domestic Cigarettes      20,121,477      18,304,608        9.9

    Total Puerto Rico and
     U.S. Possessions                 340,596         343,255       -0.8
                                      -------         -------       ----

    Grand Total                    20,462,073      18,647,863        9.7
                                   ==========      ==========        ===


    Notes:
    1.    This information is unaudited and is not adjusted for returns.
           Domestic unit volume includes units sold as well as promotional
    2.     units and excludes volumes for Puerto Rico and U.S. Possessions.
           Unit volume for a quarter is not necessarily indicative of unit
    3.     volume for any subsequent period.
           Unit volume is not necessarily indicative of the level of revenues
    4.     for any period.
           The six months ended June 30, 2011 contained one more shipping day
    5.     than the comparable period ended June 30, 2010.

    Lorillard, Inc. and Subsidiaries
    Selected Domestic Retail Market Share Data (1)
                                      Three Months
                                     Ended June 30,
                                     --------------
                                    2011        2010     Pt Chg
                                     ---         ---     ------

    Lorillard                       14.2        12.8         1.4
    Newport                         12.0        10.9         1.1
    Total Industry Menthol          30.3        29.8         0.5
    Newport Share                   36.6        36.6         0.0
    of Menthol Segment


                                       Six Months
                                     Ended June 30,
                                     --------------
                                    2011        2010     Pt Chg
                                     ---         ---     ------

    Lorillard                       14.2        12.7         1.5
    Newport                         12.0        10.9         1.1
    Total Industry Menthol          30.6        29.9         0.7
    Newport Share                   36.5        36.5         0.0
    of Menthol Segment


    (1) Unaudited information based on Lorillard's Proprietary Retail Database
     ("EXCEL")

SOURCE Lorillard, Inc.


Source: newswire



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