Lorillard Inc.'s (LO) second-quarter profit grew 10% as the company's bottom line was bolstered by higher prices for traditional cigarettes and rising demand for e-cigarettes.
The No. 3 U.S. cigarette producer by revenue, which sells Newport products, reported total wholesale shipments fell 1.7%, better than the industry's projected overall decline of 6.1%. Domestic wholesale shipments, which exclude Puerto Rico and U.S. possessions, were down 1.9%.
Tobacco companies face a difficult operating environment as cigarette volumes have been declining for years. Volume trends this year have been more bruising than historical trends, as consumers have been stung by an increase in payroll taxes and higher gasoline prices at the pump.
Even as volumes decline, Lorillard has outperformed the industry by dominating the market for menthol cigarettes, which are popular among younger smokers. But the Food and Drug Administration this week said menthol-flavored cigarettes likely pose a greater health risk than regular cigarettes, and the agency signaled it is considering regulatory action that could restrict sales.
The deliberations are more significant for Lorillard, which gets about 90% of its sales from menthol cigarettes, while Altria Group Inc. (MO) and Reynolds American Inc. (RAI) rely less on that category.
Overall, Lorillard reported a profit of $313 million, or 83 cents a share, up from $284 million, or 72 cents a share, a year earlier. Excluding a credit tied to the company's tobacco settlement payments in the latest quarter and acquisition costs in the prior-year period, per-share earnings rose to 81 cents from 73 cents.
Analysts surveyed by Thomson Reuters expected a profit of 80 cents a share.
Sales jumped 4.2% to $1.8 billion.
Gross profit jumped to 37.6% from 35.4%.
Sales volume for Lorillard's Newport brand, which represents a bulk of its sales, slid 1.3%, though its retail-market share climbed to 12.6% from 12% last year.
Lorillard, which last year spent $135 million to buy electronic-cigarettes maker blu eCigs, reported net sales for that business totaled $57 million in the latest quarter, matching the first quarter's total.
The company spent $169 million to repurchase 3.9 million shares during the quarter.
Shares were inactive premarket. They closed at $44.41 on Wednesday.
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