LORILLARD, INC Reports Operating Results

LORILLARD is the third largest manufacturer of cigarettes in the United States. Lorillard is the oldest continuously operating tobacco company in the U.S. Newport Lorillard’s flagship brand is a menthol-flavored premium cigarette brand and the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport the Lorillard product line has five additional brand families marketed under the Kent? True? Maverick? Old Gold? and Max? brand names. These six brands include 44 different product offerings which vary in price taste flavor length and packaging. Lorillard’s manufactures all of its products at its Greensboro North Carolina facility and maintains its headquarters there. Lorillard, Inc has a market cap of $12.85 billion; its shares were traded at around $77.8 with a P/E ratio of 13.7 and P/S ratio of 3.1. The dividend yield of Lorillard, Inc stocks is 5.2%.
Highlight of Business Operations:

Net sales. Net sales increased by $294 million, or 26.1%, from $1.125 billion for the three months ended September 30, 2008 to $1.419 billion for the three months ended September 30, 2009. Net sales increased $291 million due to the increase in federal excise taxes effective April 1, 2009 and $94 million due to higher average unit prices reflecting price increases in December 2008 and February and March 2009, partially offset by $69 million due to lower unit sales volume and $22 million of higher sales incentives. Federal excise taxes are included in net sales and increased $30.83 per thousand units, or $0.62 per pack of 20 cigarettes, to $50.33 per thousand units, or $1.01 per pack of 20 cigarettes, effective April 1, 2009.

Cost of sales. Cost of sales increased by $276 million, or 42.1%, from $655 million for the three months ended September 30, 2008 to $931 million for the three months ended September 30, 2009. The increase in cost of sales is primarily due to the increase in federal excise taxes, higher raw material costs (primarily tobacco and wrapping materials) and higher pension expense, partially offset by lower unit sales volume, the absence of free product promotions and lower expenses related to the State Settlement Agreements. We recorded charges for our obligations under the State Settlement Agreements of $294 million and $304 million for the three months ended September 30, 2009 and 2008, respectively, a decrease of $10 million. The $10 million decrease is due to the impact of lower unit sales ($19 million), partially offset by impact of the inflation adjustment ($8 million) and other adjustments ($1 million).

Net sales. Net sales increased by $739 million, or 23.7%, from $3.116 billion for the nine months ended September 30, 2008 to $3.855 billion for the nine months ended September 30, 2009. Net sales increased $595 million due to the increase in federal excise taxes effective April 1, 2009 and $317 million due to higher average unit prices reflecting price increases in May and December 2008 and February and March 2009, partially offset by $134 million due to lower unit sales volume and $38 million of higher sales incentives. Federal excise taxes are included in net sales and increased $30.83 per thousand units, or $0.62 per pack of 20 units, to $50.33 per thousand cigarettes, or $1.01 per pack of 20 cigarettes, effective April 1, 2009.

Cost of sales. Cost of sales increased by $591 million, or 32.1%, from $1.839 billion for the nine months ended September 30, 2008 to $2.430 billion for the nine months ended September 30, 2009. The increase in cost of sales is primarily due to the increase in federal excise taxes, higher raw material costs (primarily tobacco and wrapping materials) and higher pension expense, partially offset by lower unit sales volume, the absence of free product promotions and lower expenses related to the State Settlement Agreements. We recorded charges for our obligations under the State Settlement Agreements of $848 million and $854 million for the nine months ended September 30, 2009 and 2008, respectively, a decrease of $6 million. The $6 million decrease is due to the impact of lower unit sales ($33 million), partially offset by impact of the inflation adjustment ($23 million) and other adjustments ($4 million).

Selling, general and administrative. Selling, general and administrative expenses increased $6 million, or 2.2%, from $276 million for the nine months ended September 30, 2008 to $282 million for the nine months ended September 30, 2009. The increase was primarily due to an increase in legal expenses of $17 million due to the continuing defense costs associated with the Engle progeny cases and higher pension expense of $10 million, partially offset by the absence of an $18 million charge in the first nine months of 2008 related to the Separation.

Cash flow from financing activities. Our cash flow from operations has exceeded our working capital and capital expenditure requirements during the first nine months of 2009. We paid cash dividends of $291 million on January 24, 2008 and $200 million on April 28, 2008 to Loews Corporation, our sole shareholder prior to the Separation on June 10, 2008, and cash dividends to our shareholders of $155 million on March 12, 2009, $155 million on June 12, 2009 and $163 million on September 11, 2009. During the third quarter of 2009, the Company completed the $250 million share repurchase program announced on May 21, 2009 by repurchasing approximately 1.5 million shares of its common stock at a cost of $105 million and repurchased approximately 3.4 million shares of its common stock under a $750 million share repurchase program announced on July 27, 2009 at a cost of $252 million.



Oct. 29, 2009 Gurufocus

Leave a Reply

Your email address will not be published. Required fields are marked *

*
To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Anti-spam image