UPDATE 3-Lorillard profit beats estimates; shares rise

* Q3 EPS $1.81 vs Street view $1.64

* Sales increase 10 pct to $1.57 bln

* Domestic shipments up 5.8 pct

* Shares up nearly 2 pct
(Adds comments, context)

By Jon Lentz

NEW YORK, Oct 25 (BestGrowthStock) – Cigarette maker Lorillard Inc
(LO.N: ) reported a higher-than-expected quarterly profit as it
shipped more cigarettes and increased its market share.

The company, the third-largest U.S. cigarette maker, said
shipments of its flagship Newport brand rose 2.9 percent and
shipments of its discount cigarettes climbed 30.3 percent.

“Newport has just outperformed quarter after quarter for a
couple of years now,” said Phil Gorham, a tobacco analyst with
Morningstar Inc. “What’s interesting is that their discount
brand is driving growth as well. The numbers wouldn’t have been
as impressive without the increase in the discount brand.”

Gorham added that competitors watching the strong
performance may try to take share with their own alternatives
to Newport, the leading menthol cigarette, barring tightened
regulation by the U.S. government.

A U.S. Food and Drug Administration panel studying the
health affects of the popular flavoring and whether menthol
flavoring encourages people to start smoking cigarettes, is due
to submit a report in March 2011.

Chief Executive Murray Kessler, who took over in September,
said that science does not show menthol to be harmful. But the
FDA review process could “create some volatility in our stock,
down or up,” he said.

Meanwhile, a new non-menthol Newport cigarette will start
shipping in the last week of October.

Kessler said results of an ongoing strategic review would
be reported early next year but stressed that “Lorillard is not
in need of a course correction.” The review will look at
expanding into the smokeless category, which Kessler oversaw as
CEO of Altria’s subsidiary UST LLC and which he said he is
“bullish” on.

Lorillard said profit rose 16.6 percent to $274 million, or
$1.81 per share, in the third quarter, from $235 million, or
$1.44 per share, a year earlier.

Analysts on average had forecast $1.64 a share, according
to Thomson Reuters I/B/E/S.

The increase in earnings per share was partly due to a
stock buyback.

Sales excluding excise taxes totaled $1.07 billion, higher
than the $1.01 billion expected by analysts. Lorillard said it
shipped 9.83 billion cigarettes domestically in the quarter, up
5.8 percent from a year earlier.

About 2 percentage points of the 5.8 percent increase in
Lorillard’s shipments were due to uneven inventory changes.

“Lorillard continues to prove that it’s the best in class
operationally, and yet it’s trading at a discount to its peer
group because of this menthol risk,” said Charles Norton, a
portfolio manager with GNI Capital Inc. “Newport has the best
brand equity and they continue to gain share. Menthol continues
to do well and Newport is gaining share within menthol.”

Lorillard’s rise in domestic wholesale cigarette shipments
compared with an industrywide decline of 0.8 percent, the
company said. Competitors Reynolds American Inc (RAI.N: ) Altria
Group Inc (MO.N: ) posted declines of 2.6 percent and 2.4
percent, respectively, last week.

Lorillard’s market share rose 1 percentage point to 12.9
percent in the quarter, including a 0.5 percentage point
increase for its Newport brand.

Altria also posted higher-than-expected earnings as its
Marlboro cigarettes gained market share. [ID:nN20192147]
Reynolds American beat expectations through higher pricing.

Shares were up $1.70 to $85.75 in morning trading.
(Reporting by Jon Lentz; Editing by Dave Zimmerman, Maureen
Bavdek, John Wallace and Steve Orlofsky)

UPDATE 3-Lorillard profit beats estimates; shares rise