Cigarette manufacturer Lorillard Inc.’s second-quarter net profit increased more than 10% as it sold Newport and Maverick cigarette brands at higher prices.
The third largest tobacco company cautioned that its third-quarter cigarette volumes will be affected because wholesalers stocked more than usual last year, and that could damage its earnings.
Lorillard gives significant attention to promotion of its brands, most of all on it currently launched non-menthol version of Newport.
The manufacturer didn’t give any guidance for this particular quarter.
Its shares dropped $5, or 4.4 %, ending trading at $107.29.
Investment analyst Vivien Azer declared that the company’s shares were under considerable pressure due to concerns about increase slowing down in the second half of the year, but the sell-out is “overdone.”
Lorillard spokesman stated that company’s net profit increased to $291 million, or $2.05 per share, for the period till June 30, up from $263 million, or $1.73 per share, a year earlier. The per-share figure was lifted due to lower number of outstanding shares.
The volume of cigarettes Lorillard sold increased about 10% to approximately 10.8 billion cigarettes on profits of 9.6 % from its Newport brand and nearly 21 % for its lower-priced Maverick brand, while it expected a 1.3 % decrease for the whole industry.
According to the company’s representative their non-menthol Newport cigarettes, launched in November, presented the bulk of the increase in Newport shipments during the quarter, but it also underlined that the price of promoting it affected its profit.
Competitors Reynolds American Inc. and Altria Group Inc. both declared selling fewer tobacco products in the same quarter.
Increased unemployment and growing cigarette prices and taxes have led many smokers to switch to lower-priced brands during the recession trying to save money. Lorillard’s Maverick and Reynolds American’s Pall Mall have been among the beneficiaries.
The majority of tobacco enterprises have been increasing prices and dropping costs in order to maintain profits up, as the recession and reducing demand affected cigarette sales. Tax increases and smoking bans have made cigarettes industry stricter.
Lorillard’s retail market share raised 1.4 points within the quarter to 14.2 % of the U.S. market. Newport’s share of the menthol cigarettes was firm at 36.6 %, while its main competitors have increased efforts to confer some of the raising menthol market.
The company’s gross revenue dropped to 35.4 % due to promotional costs for Newport non-menthol.
Lorillard it is the last one of the country’s largest tobacco companies to present second-quarter results.
The first was Altria Group, holding company of Marlboro producer Philip Morris, which declared that, while cigarette sales dropped, the prices were increasing. The top-brand Marlboro also lost its market share.