TheStreet.com  Apr 9  Comment 
NEW YORK (TheStreet) --Shares in Lorillard Inc. are lower 2.56% to $52.31 on Wednesday after having its "reduce" rating reaffirmed at Nomura Securities. The firm set the rating at "reduce" due to the inflated acquisition premium the market is...
SeekingAlpha  Apr 8  Comment 
By John Holt: As I had mentioned in a previous article, Altria Group (MO), Reynolds American (RAI), and Lorillard Inc. (LO) are all jockeying for position in the fast growing sector e-cig sector. Lorillard was a first-mover, acquiring existing...
TheStreet.com  Apr 3  Comment 
NEW YORK (TheStreet) -- Lorillard  dipped 3.32% to $52.18 at 3 p.m. on Thursday after Reuters reported that the British government wants to ban branded cigarette packaging. The British government believes this will improve public health and...
StreetInsider.com  Mar 31  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Management+Changes/Lorillard+%28LO%29+Adds+Wilton+Brands+Exec+Chair+Jerry+Levin+as+Director/9333663.html for the full story.
Benzinga  Mar 31  Comment 
Lorillard, Inc. (NYSE: LO), the third largest tobacco company in the United States, today announced the election of Jerry W. Levin to its Board of Directors, effective immediately. The Board is now comprised of nine members, eight of whom are...
SeekingAlpha  Mar 26  Comment 
author name submits: Right now is a great time to perform a comparison between Altria (MO) and Lorillard (LO) because it provides us a real-life opportunity to take a look at one of the most neglected prefatory words in finance: the...
SeekingAlpha  Mar 24  Comment 
author name submits: Lorillard (LO) is a company that I usually don't spend too much time analyzing, because I didn't care for the company's lack of international operations and I've been hesitant to embrace a company with seemingly undiversified...
TheStreet.com  Mar 17  Comment 
Story updated at 9:55 a.m. to reflect market activity. NEW YORK (TheStreet) -- Lorillard was upgraded to "buy" from "neutral" by Goldman Sachs Monday. Shares of Lorillard gained 2% to $52.90 in morning trading. The bank set a price target of...
Benzinga  Mar 17  Comment 
SeekingAlpha  Mar 14  Comment 
ByIAEResearch: Lorillard (LO) is the third largest manufacturer of cigarettes in the U.S and produces cigarettes for both the premium and the discount segments of the domestic cigarettes market. Lorillard is one of the highest yielding stocks in...
SeekingAlpha  Mar 9  Comment 
ByEquity Watch: Despite regulatory uncertainty over menthol cigarettes, Lorillard's (LO) shares jumped by about 10% after Financial Times reported a possible acquisition. LO, the top menthol cigarette brand in the U.S., has recently made some...


Lorillard is the 3rd largest tobacco company in the US. Its menthol brand, Newport, gives LO 94% of its revenue, 92% of its volumes, 34% share of all menthol cigarette sales in the US, as well as an overall domestic tobacco market share of 10%. The Greensboro–based company, which also produces the Kent and True brands, is managed by CEO Martin Orlowsky. Orlowsky has been at LO for 20 years. On June 10, 2008, LO was spun off from former parent Loews Group. Previously, Loews floated Lorillard as a tracking stock wherein Lorillard generated cash for the parent’s sake.

Trends and Forces

Economically independent industry

Lorillard participates in an economically independent industry and returns over the long term are not predicated on the overall economic conditions of the US. The cigarette industry is protected by regulatory moats, as well as scale economies and brand loyalty. Brand power is an empty CEO speak if it does not translate into pricing power, and historically, tobacco manufacturers have been able to raise prices faster than volumes have fallen. A pack of cigarettes costs 25 cents to make the fact that it can be sold for 20x that amount is a testament to the robust business fundamentals underlying the industry. 5.5 trillion cigarettes were consumed last year, of which 27-28% belonged to the menthol category. LO, which boosted its market share for the seventeenth straight year in 2007, is the de facto play on menthol, which has enjoyed less detrimental volume trends than the rest of the tobacco group: Newport leads the category in terms of customer retention and margins. According to Merrill Lynch, 1000 sticks of Newport is generating a profit of more than $36 dollars vs. $28 per 1000 sticks at Altria/PMUSA.


Number 2 player REYNOLDS AMERICAN (RAI) (28% domestic share w/ its menthol brands – most notably Kool and Salem -- accounting for 24% of menthol category) has felt the pangs of lower demand/higher prices more than its rivals. While there is room for margin expansion (25% right now at RAI vs. 30% at LO and MO) at RAI, its drastic volume declines at twice the industry clip are keeping us on the sidelines at the moment. Even after its 2004 merger with Brown/Williamson, its overall US share has shrunk. While its top 3 brands are gaining share, it not stopped the bleeding enough to buoy investor sentiment. Non-premium brands at Reynolds have seen little to no ad spend support, making share erosion a self infliction story that’s made investors nervous. And like LO, RAI offers investors little in the way of international exposure; the lack of near term catalysts, other than its investments in smokeless tobacco (10% of sales), which we feel the Street has already discounted, underscores our lukewarm feeling on the stock.

Altria Group (MO), the 800 pound gorilla ($44.2B market cap) hold 50% of the retail market and its Marlboro brand accounts for 40% of all cigarettes sold. Precisely because it is so big, MO will have to find innovative ways to grow, either by category extensions or improved marketing. As a result, profitability in the near term could suffer slightly, which could explain why the bellwether is 17% off its highs. Altria throws off $3B/year in free cash flow, and that leg of the story hasn’t’ been impaired. The firm is now run by CEO Mike Szymanczyk, whose marketing heavy background resonates with the company’s strategic direction in the coming decade. That said, LO is our favorite pick in the group since it has a better volume story than MO and a better margin profile than RAI.

Retail Share for Top thee Menthol Brands: Jan-Apr 2008) Jan Feb March April
Newport 8.3%8.5% 8.6% 8.6%
Marlboro Menthol 5.0%5.3% 5.5% 5.5%
Kool 3.1%3.1% 3.0% 3.0%
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