Lorillard Posts Profit Jump

CEO calls increases a tribute to strength of "brands, people and business model."

GREENSBORO, N.C. -- The cigarette maker Lorillard Inc. reported net income growth of nearly 20% in the fourth quarter, as it increased both cigarette pricing and volumes. "Quarter and years, for that matter, don't get much better than this," CEO Murray S. Kessler told analysts during an earnings call.

The company reported earnings of $310 million for the period ended Dec. 31, up from $259 million a year earlier.

Kessler said Lorillard "continued to buck industry trends," growing domestic wholesale shipments in the fourth quarter 5.5% vs. a year ago in the backdrop of an industry that declined 2.7%.

Strong volume growth translated to market share gains in every segment Lorillard competes in. Total Lorillard fourth-quarter market share, measured by the company's proprietary database which measures shipments from wholesale to retail, was 14%, an increase of 0.8 share points. Total Newport market share grew 0.6 share points, and Newport Menthol market share grew 0.3 share points. Maverick market share grew 0.3 share points. Newport share of the menthol cigarette grew 0.3 share points. And total Lorillard share in the menthol market grew by 0.8 share points, all versus year ago.

Price realization strengthened in the fourth quarter as the company lapped last year's Newport Non-Menthol introduction, including the initial investment in an expansion market and a price increase. Therefore, volume growth, along with solid price realization growth, translated to an 8.9% increase in fourth quarter net sales vs. a year ago. While the company has initiatives to continue to grow it in the future, "the goal wasn't just to get to volume for volume's sake," Kessler said. "We took a very sizable price increase, a 20% price increase. And I was delighted to see the brand maintain itself and the repeat level stayed very strong."

For the year, Lorillard domestic wholesale shipments increased 6.9% versus year ago, while the industry declined an estimated 3.5%.

Total year net sales increased to a record $6.5 billion.

Kessler also commented on potential menthol regulation, saying the company awaits the FDA's peer-reviewed assessment of the science, but that scientific evidence does not support an assertion that menthol in cigarettes negatively or disproportionately impacts the public health. "Again, we believe this is just one more step in what we believe will be a very long review process."

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