Lorillard Inc. Earnings: Increased Costs Strains Margins as Profit Drops

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S&P 500 (NYSE:SPY) component Lorillard Inc. (NYSE:LO) reported its results for the first quarter. Lorillard manufactures and sells cigarettes and tobacco under the brand names of Newport, Kent, True, Maverick, and Old Gold.

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Lorillard Earnings Cheat Sheet for the First Quarter

Results: Net income for Lorillard Inc. fell to $223 million ($1.70 per share) vs. $248 million ($1.71 per share) a year earlier. This is a decline of 10.1% from the year-earlier quarter.

Revenue: Fell 0.6% to $1.53 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Lorillard Inc. reported adjusted net income of $1.74 per share. By that measure, the company fell short of mean estimate of $1.99 per share. It beat the average revenue estimate of $1.2 billion.

Quoting Management: “Lorillard’s fundamental performance remained strong in the first quarter, although it was masked by significant changes in wholesale inventory. At retail, which is unaffected by wholesale inventory, Lorillard once again achieved record high levels of market share in all key segments of the cigarette industry in which we compete,” said Murray S. Kessler, Chairman, CEO & President. “Based on strong fundamentals, that are expected to continue, we remain confident in our ability to deliver a double digit total shareholder return in 2012 and over the long term as measured by earnings per share growth and dividend yield.”

Key Stats:

A year-over-year revenue decrease last quarter breaks a four-quarter streak of revenue increases. The best quarter in that span was the first quarter of the last fiscal year, which saw revenue rise 12.9%.

Gross margin went down 1.1 percentage points to 34.3%. The change appeared to be caused by costs, which went up 1.1% from the year-earlier quarter, while revenue fell 0.6%.

The company fell short of estimates last quarter after beating the mark the quarter before with net income of $2.20 versus a mean estimate of net income of $1.96 per share.

Net income has increased 4.9% year-over-year on average across the last five quarters. The biggest gain came in the fourth of the last fiscal year, when income climbed 19.7% from the year-earlier quarter.

Looking Forward: Analysts appear increasingly optimistic about the company’s results for the next quarter. The average estimate for the second quarter has moved up from $2.26 a share to $2.31 over the last ninety days. Over the past three months, the average estimate for the fiscal year has climbed from $8.60 per to share to $8.95.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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