UPDATE: Lorillard 4Q Net Up 20% On Higher Shipments

Lorillard Inc.'s (LO) fourth-quarter earnings jumped 20% as the cigarette maker reported higher shipments due to gains for the Newport and Maverick brands and higher selling prices across all brands.

The company's shares jumped 8.5% to $123.05 as sales and profit easily topped Wall Street's expectations and as Lorillard also reported higher margins and increased its quarterly dividend by 19%. The stock was the second-best performer in the S&P 500 on Thursday and put Lorillard in positive territory for the year.

During Lorillard's conference call, Chief Financial Officer David Taylor said the top line increase was driven by a 5.6% increase in wholesale shipments and higher average selling prices. He said higher average wholesale prices and lower promotional levels were observed "across the board on all brands."

Analysts have praised two rounds of price increases by the three largest U.S. tobacco companies last year, as it signals that they continue to command strong pricing power. On Wednesday, Reynolds American Inc. (RAI) said fourth-quarter earnings growth could, in part, be attributed to higher prices.

Lorillard--No. 3 U.S. cigarette producer by revenue--dominates the market for menthol cigarettes, which are popular among younger smokers, though overall smoking rates have dropped. Lorillard has been promoting the Newport brand more strongly in the Western part of the U.S. in an effort to expand market share and gain new customers. The company has also seen success with its Newport Red brand, a non-menthol version of its popular Newport cigarettes introduced late in 2010.

Lorillard announced its board approved a 19% increase to the quarterly dividend, raising the payout to $1.55 from $1.30 a share. It is the fourth increase since Lorillard became an independent publicly-traded company in June 2008.

When discussing potential menthol regulation, Chairman and Chief Executive Murray Kessler told analysts Lorillard was still awaiting a Food and Drug Administration report, which the agency has said will contain no policy actions but has been an overhang on the stock.

Kessler warned any potential "draconian regulation" would have some unintended consequences, "including the expansion of a contraband market, a loss of tax revenues, and a significant loss of jobs."

Lorillard reported a profit of $310 million, or $2.32 a share, up from $259 million, or $1.74 a share, a year earlier. Excluding a mark-to-market gain on Lorillard's tobacco settlement expense, adjusted earnings were $2.20 in the latest quarter. Net sales climbed 8.9% to $1.62 billion, or totaled $1.13 billion excluding excise taxes.

Analysts surveyed by Thomson Reuters expected a profit of $1.95 per share on revenue after excise taxes of $1.08 billion.

Gross margin improved to 39.4% from 36.2%.

Total wholesale shipments increased 5.6% to 9.98 billion units. Domestic wholesale shipments, which exclude Puerto Rico and U.S. Possessions, climbed 5.5%. That growth comes amid an estimated 2.7% decline in industry domestic wholesale shipments, according to Lorillard.

Sales volume for Lorillard's Newport brand, which represents the bulk of its sales, was up 4.3% as its domestic retail market share climbed to 11.7% from 11.1%. The market share gain slightly outpaced the 0.5 percentage point gain for the total menthol industry. Maverick's volume jumped 16%, while Old Gold's dropped 5.1%.

During the quarter, Lorillard spent $366 million to repurchase about 3.3 million shares. The company had $187 million remaining under a stock-repurchase program as of the end of last year.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

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