UPDATE: Lorillard To Enter Moist Smokeless Tobacco Category

Newport cigarette maker Lorillard Inc. (LO) announced Monday that it will soon enter the market for moist smokeless tobacco products, but said that an earlier joint venture with Swedish Match AB (SWMA.SK) to develop a new product in the U.S. had been mutually terminated.

Moist smokeless tobacco is a type of tobacco product that is popular in the U.S. and widely sold by companies like Altria Group Inc. (MO) through brands like Copenhagen and Skoal. Sales of these smokeless tobacco products have risen in the U.S. even as cigarette sales have dropped.

Lorillard didn't provide details of the new moist smokeless tobacco product it will sell in the U.S. but said that an existing joint venture with Swedish Match to develop a new "snus" tobacco product for the U.S. had been terminated. Snus is a nearly 200-year-old Swedish product. In 2006 Lorillard entered into a joint venture with Swedish Match North America to develop and study the possibility of marketing a smokeless tobacco product for the U.S. market called Triumph Snus.

Snus differs from most smokeless tobacco products in the U.S. as it is created through a special pasteurization process. It comes in small pouches and doesn't require spitting. On a conference call, Lorillard said the snus product didn't make gains in the test markets in the U.S. and that it may not have been the right time for the product in North America. Lorillard appears to be betting that Americans will continue to lean toward such traditional formulations of smokeless tobacco, as opposed to formulations they are less familiar with like snus.

Other companies like Altria and Reynolds American Inc. (RAI) have launched snus products, but sales of these products have generally stayed relatively small. Both these companies, however, say that they are expanding the reach of their snus products.

A spokesman for Reynolds American, David Howard, said the company has been very pleased with sales of its Camel Snus product and believes that it is a "viable" product. The company rolled out Camel Snus nationwide in the first quarter of 2009 after putting it in test markets for almost three years. "It's a small market but we believe there is potential growth for that market," Howard said. An Altria spokesman, Brendan McCormick, said the company is pleased with the results of its Marlboro Snus product in test markets and will be expanding it nationally at the end of March.

Lorillard's fourth-quarter earnings fell 6.2% on declining volume and increased manufacturing and marketing costs, though sales rose with the help of higher prices.

Lorillard dominates the market for menthol cigarettes. Lorillard's Newport brand represents the bulk of its U.S. sales and its U.S. volume fell 6.5% during the quarter, though its U.S. market share rose to 10.32% from 9.86%.

Overall, the U.S. cigarette industry has seen volumes drop amid higher taxes and bans on smoking in public places. But Lorillard has held up better since its Newport brand has been able to grow its market share.

-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com

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