QUOTE AND NEWS
Motley Fool  Sep 29  Comment 
Despite the tobacco industry's solid track record of rewarding shareholders, Lorillard can no longer count itself among the top dividend stocks in the market. Find out why.
Forbes  Sep 24  Comment 
Investors eyeing a purchase of Lorillard, Inc. (NYSE: LO) shares, but cautious about paying the going market price of $59.90/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put...
DailyFinance  Sep 23  Comment 
Marie Callender’s, una marca de ConAgra Foods [NYSE:CAG], anunció hoy el lanzamiento de su proyecto “Comforts From Home”, un programa dedicado a brindar recuerdos y un poco de sabores de casa a aquellos que lo extrañan...
Motley Fool  Sep 19  Comment 
Even though shares trade below the merger price, that suggests investors are wary and may not be able to overcome the hurdles facing the cigarette giant
SeekingAlpha  Sep 18  Comment 
By Trading Champ: In mid-July 2014 Reynolds American Inc. (NYSE:RAI), the second-largest tobacco player in the U.S. announced its plans to acquire Lorillard Inc. (NYSE:LO) in a $27.4 billion deal. Recently, both companies received a request for...
SeekingAlpha  Sep 14  Comment 
By Balanced Investing: The cigarette industry has been undergoing a revolution following the advent of e-cigarettes on the back of rising health concerns. With various regulation issues still waiting to be settled, the acceptance of American Heart...
Motley Fool  Sep 10  Comment 
Tobacco giant wants FDA to regulate competition out of existence
Motley Fool  Sep 5  Comment 
A lot hinges on the completion of the merger with Reynolds American but there's still reason to hope
newratings.com  Sep 4  Comment 
WASHINGTON (dpa-AFX) - Cigarette maker Lorillard, Inc. (LO) Wednesday said two of its electronic cigarette subsidiary companies, Cygnet UK Trading Limited and Lorillard Technologies, Inc. d/b/a blu eCigs, have filed for an injunction and...
Jutia Group  Sep 3  Comment 
[Reuters - UK Focus] - Lorillard Inc (NYSE: LO - news) said two of its e-cigarette subsidiaries sued Zippo Manufacturing Co in the United Kingdom to protect itself from Zippo's claims of trademark infringement regarding the blu brand of...




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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.

Competition

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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