Lorillard Not Straying Far From Cigarettes

NEW YORK—Lorillard Co. will work to keep its market leadership in menthol cigarettes while expanding into other cigarette segments but it won’t overwhelmingly change its strategy, the company said after conducting a months-long operational review.

Lorillard, the third-largest U.S. cigarette maker by sales, said in a slide presentation accompanying an analyst meeting Wednesday that it will “Stay the course in product strategy, stay the course in messaging [and] stay the course in promotion strategy.”

The maker of Newport, Maverick and Old Gold cigarettes launched its strategic review in the fall, soon after President, Chairman and Chief Executive Murray Kessler took the helm. Lorillard said it met with 60% of active shareholders, as well as regulators, clients, consumers and employees as part of the review.

Mr. Kessler said in February that the company “is not in need of a course correction,” a sentiment reiterated in Wednesday’s presentation.

Cigarette sales have fallen in recent years amid an increase in indoor smoking bans and the graying of tobacco companies’ core consumers. Volumes have remained strong for Lorillard, however, and the company continues to gain market share. Last week, Lorillard reported first-quarter earnings increased 6.9% and sales rose 13%.

Still, the company faces challenges as the U.S. Food and Drug Administration considers restricting or banning menthol. An FDA panel determined in March that removal of menthol cigarettes from the marketplace would be a public health benefit, but fell short of recommending an outright ban.

Lorillard said it will seek growth opportunities in adjacent areas including non-menthol products. Late last year, the company introduced its non-menthol Newport Red cigarette, which has seen strong sales in trials with promotional pricing.

The company also said it will work to develop a “more widely accepted” non-full flavor—formerly known as “light”—product. Currently, white-tip cigarettes make up 80% of that category, while Newports have a more traditional brown tip.

While cigars and moist smokeless tobacco hold some allure, Lorillard said “there is no immediate need nor strategic imperative to enter cigars or [moist smokeless tobacco] right now.” Competitors Altria Group Inc. and Reynolds American Inc. have made acquisitions to join those categories, and Lorillard said it, too, would likely need to buy in. Valuation and branding challenges make that a less appealing option.

Mr. Kessler said Wednesday that products that are closer to its core competencies will be more profitable. “Our story is one of organic growth,” he said.

Lorillard hasn’t had great success in expanding beyond its basic menthol products in the past, with results that Mr. Kessler called “average at best.” It tried a Newport non-menthol cigarette in the 1990s and briefly offered Newport Slims and Newport M Blend as well.

“We have work to do here,” Mr. Kessler said. The company will tweak its method for bringing new products to market and has added new product-development and marketing directors to oversee the expansion.

Write to Melissa Korn
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