Lorillard is the second of the domestic cigarette manufacturers to report, and the results are obviously consistent with RAI’s – weaker volume, better pricing and profitability. We still aren’t seeing a whole lot to do in the domestic names at this point.
What we liked:
- EPS ahead of consensus ($0.66 vs. $0.64)
- Solid increases in net revenue per unit (+3.6%) and operating income per unit ($4.47)
- Continued good performance from the electronic cigarette segment - $50 million in revenue and $7 million of operating income
- Newport volume declined only 1.6% in the quarter, outpacing the industry by a wide margin, driving total volume declines of 2.3% in the quarter
- New $500 million share repurchase program (announced on March 8th) keeps “creeping LBO” trend going
What we didn’t like:
- Volume decline was against easiest comparison of the year
- Increase in revenue per unit (pricing) was against easiest comparison of the year, Q2 and Q3 are more difficult
- Per unit operating income comparisons get more difficult in the next two quarters as well
- Sequential decline in electronic cigarette segment profitability (same level of operating income as in Q4 on $11 million increase in sales
Call with questions,
Rob
Robert Campagnino
Managing Director
HEDGEYE RISK MANAGEMENT, LLC
Matt Hedrick
Senior Analyst
