NEW YORK, – Cigarette maker Lorillard Inc (LO.N) reported a higher-than-expected quarterly profit as it capitalized on its position as the top seller of menthol cigarettes in the U.S.
The company, the third-largest U.S. cigarette maker, said shipments of its flagship Newport brand, the leading menthol cigarette, rose 2.9 percent, while total U.S. industry cigarette shipments fell 0.8 percent.
Overall domestic shipments rose by 5.8 percent to 9.83 billion.
Most U.S. tobacco companies are facing declining shipments in a domestic market where the number of smokers are decreasing.
Competitors Reynolds American Inc (RAI.N) and Altria Group Inc (MO.N) posted shipment declines of 2.6 percent and 2.4 percent, respectively, last week.
“Newport has just outperformed quarter after quarter for a couple of years now,” said Phil Gorham, a tobacco analyst with Morningstar Inc.
Altria, which makes industry leader Marlboro cigarettes, and Reynolds, maker of the Camel and Pall Mall brands, have been trying to sell menthol cigarettes, but are losing ground in a segment that is doing relatively better in the tobacco industry, Gorham said.
“Newport has the best brand equity and they continue to gain share,” said Charles Norton, a portfolio manager with GNI Capital Inc. “Menthol continues to do well and Newport is gaining share within menthol.”
The continued success of Newport may spur competitors to increase their efforts to gain share in the menthol cigarette market, Gorham said, barring tightened regulation by the U.S. government.
A U.S. Food and Drug Administration panel studying the health affects of the popular flavoring and whether it encourages people to start smoking cigarettes is due to submit a report by March 2011.
Chief Executive Murray Kessler, who took over in September, said that science does not show menthol to be harmful. But the FDA review process could “create some volatility in our stock, down or up,” he said.
Meanwhile, a new non-menthol Newport cigarette will start shipping in the last week of October.
Kessler said results of an ongoing strategic review would be reported early next year but stressed that “Lorillard is not in need of a course correction.” The review will also look at expanding into the smokeless category, which Kessler oversaw as CEO of Altria’s unit UST LLC and which he said he is “bullish” on.
Lorillard said profit rose 16.6 percent to $274 million, or $1.81 per share, in the third quarter, from $235 million, or $1.44 per share, a year earlier.
Analysts on average had forecast $1.64 a share, according to Thomson Reuters I/B/E/S.
The increase in earnings per share was partly due to a stock buyback.
Sales excluding excise taxes totaled $1.07 billion, higher than the $1.01 billion expected by analysts.
Lorillard’s market share rose 1 percentage point to 12.9 percent in the quarter, including a 0.5 percentage point increase for its Newport brand.
Altria also posted higher-than-expected earnings as its Marlboro cigarettes gained market share. Reynolds American beat expectations through higher pricing.
Shares closed up $1.09 to $85.14 on the New York Stock Exchange.
By Jon Lentz; Editing by Maureen Bavdek, John Wallace, Steve Orlofsky and Bernard Orr