Lorillard - highlights q1 2010 earnings..

April 27, 2010 -Lorillard’s domestic cigarette volumes during the first three months of this year, at 8.702 billion, were up by 12.7 per cent on those of the first three months of 2009. Comparing the same periods, total US domestic volumes were down by 2.4 per cent. Martin (Marty) Orlowsky, President and CEO suggests that any observations regarding industry and company trends for 2010 as compared with the prior year be deferred until a full six months worth of data is available for 2010 and then compare it with first six months of 2009. First quarter 2009 sales were impacted by last year's Federal excise tax increase.)

Lorillard’s volumes in Puerto Rico and US possessions were down by 12.7 per cent to 0.160 billion but, overall, volumes were up by 12.1 per cent to 8.863 billion.

Full price brand volumes increased by 9.5 per cent to 7.640 billion because of a 9.8 per cent increase in sales of Newport to 7.509 billion. Sales of Kent were down by 6.8 per cent, sales of True were down by 4.0 per cent and sales of Max were down by 5.4 per cent.

Price/value brand volumes increased by 42.4 per cent to 1.062 billion, with sales of Maverick up 48.7 per cent to 0.956 billion and sales of Old Gold up 3.1 per cent to 0.105 billion.

Lorillard’s share of the domestic market during the first three months of this year, at 12.61 per cent, was up by 1.17 percentage points. Newport’s share was up by 0.75 of a percentage point to 10.90 per cent, and Lorillard’s share of the domestic menthol market was up by 1.10 percentage points to 29.90 per cent.

Lorillard's first quarter domestic wholesale shipments totaled 8.863 billion, up 12.7% compared to the same period in 2009 versus a 2.4% decline in total domestic wholesale industry shipments.

Conference call..

Question: Marty, can you just comment on the share gain – I mean they were significant this quarter. Just wondering aside from wonderful management, what exactly is driving this magnitude of share gains?

Response: Our share gains are solely due to organic growth by the line extending filling pipelines with new versions of Newport. I think it is a continuation of our strategy as we said in our release and I think I said it in my own comments, the execution of our strategy which is the – very targeted with respect to where we support the Newport brand and market-by-market and conceivably certain decisions made by our competitors that are helping us is of course helping themselves.

Question: I realize it is early days in the process, but as it relates to the FDA and the menthol study, is there anything that has occurred so far that causes you to alter in any way your assessment of the likely ultimate outcome of the process?

Response: Marty - No, the additional meetings in our minds were not surprising in any real sense. We certainly expected the thrust of the meetings to be as they were, so nothing has really materially changed in our mind even though obviously it was the first of the interest in going through surrounding the meetings, but nothing has changed as far we are concerned. The issue remains the same. It does not make any difference, whether – any posturing might take place during the course of these meeting, any speculation might grow out of that posturing.

The reality is, as we have said repeatedly the weight of the evidence – from an epidemiological standpoint and other aspects of studies that have been conducted did not reflect that menthol is any different in terms of its effects on the public health than non-menthol cigarettes are. That does not change. We also agree that FDA will be obligated to review the contraband dimension associated with (inaudible) any thought about banning menthol cigarette what that might imply. None of that has changed...

Question: Marty, in mid-year this year “lights” and “medium” terminologies going to be removed. And the question is, isn’t there significant, rather sufficient distinction on the packaging of the various Newport brand for consumers to clearly identify and call out their preferred products or do you think you need to institute on some other smaller SKU, some differentiated graphics to what you currently have?

Response: I think we are fine. We did a thorough review of it a year ago. And we made certain modification to the graphic to ensure that they were differentiated, the graphic dimensions of the packaging, so we are not concerned about it. We think we have accomplished what we need to.

Question: I’ve got a question on Maverick’s distribution. If I understand what you said, you said you are taking the distribution national and my understanding is with Newport at least, you are more concentrated in eastern half and so, when you are taking Maverick beyond just sort of typical Newport borders?

Response: Marty - Let me clarify something. Newport is in national distribution. Newport is in probably at least 200 to 300,000 outlets maybe more, maybe 500,000. Whatever the number of the stores that are out there that sell cigarette, Newport is pretty well represented. So, Newport is nationally distributed. When we made the changes at Newport business development on a geographic basis, from a development standpoint and by that I mean, in terms of its market share achieved it varies by geography and yet northeast and the southeast tend to have above the average sales over the market share the Newport than does the west. But we do sell cigarettes in the west. We are not non-existent in any of those locations.

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Maverick again, is in national distribution. It has always been in national distribution. And when we have added distribution, we added more packings or SKUs as the brand has grown, but both Newport and Maverick, I can emphasize enough is in national distribution.

Question: So, strategically you are saying you are not planning on distributing Maverick any more or less than Newport?

Response: Marty - no, not at all.

Lorillard, which was spun off from Loews Corp. in June 2008, has been battling to keep its nearly 35% share of the relatively strong menthol market. Competitors Philip Morris USA, owned by Altria Group, and Reynolds American have ramped up efforts to market menthols.

Last week Reynolds American and Altria Group reported declines in cigarette sales for q1 2010. Reynolds and Altria are betting on cigarette alternatives such as snuff and chewing tobacco for future sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business more difficult.

References: Lorillard, Inc. Q1 2010 Earnings Call Transcript, Seeking Alpha, 4/26/2010; Lorillard outperforms market in first quarter Apr 27, 2010, Tobacco Reporter, 4/27/2010; Lorillard Q1 Results Beat Estimates, Alpha Earnings, 4/26/2010; Lorillard 1Q profit rises as cigarette sales climb, The Associated Press - Bismarck Tribune, 4/26/2010.