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What do you do when one domestic tobacco trounces its peers? I'm talking about Lorillard (NYSE:LO), the maker of Newport, Old Gold and Kent brands, a company that is up 13% since I highlighted it five months ago, especially since it will be paying an attractive 5.1% dividend.

Most American tobacco firms are seeing a declining business. Lorillard is bucking that trend: Its shipment volume and sales are rising. Should you swap out of Reynolds American (NYSE:RAI) and Altria (NYSE:MO) and buy Lorillard?

In its recently announced quarter, the company produced impressive results. Lorillard's revenue climbed 9% to $1.62 billion, easily surpassing the $1.09 billion average analyst estimate. Profit excluding some one-time gains was $2.20 a share, exceeding the $1.95 average projection. Earnings rose 26%. Shipments climbed 5.5%. The company gained 0.8% market share.

That's far better than Altria which managed a 3% revenue and 14% earnings increase. Altria has been struggling to add revenue. Shipment volume was flat for the fourth quarter. Marlboro man's market share slipped 0.4%. At Reynolds American, shipment volume fell over 7% for the quarter with flat net sales with market share falling 1.3%.

Lorillard's CEO rightly crowed about the company's achievement in its conference call:

Lorillard continued to buck industry trends, growing domestic wholesale shipments in the fourth quarter 5.5% versus year ago in the backdrop of an industry that declined 2.7%...Our 8.2 percentage point outperformance of the industry was driven by a 4.3% gain versus year ago on our flagship Newport brand and a 15.8% gain on our discount brand, Maverick.

The only fly in the ointment: What will the FDA do about menthol cigarettes? The FDA is reviewing whether menthol unfairly entices smokers. Lorillard's menthol-cigarette represents nearly 85% of its business. If the FDA restricted menthol, Lorillard would be profoundly affected. Per the 10K:

The legislation permits the FDA to impose restrictions regarding the use of menthol in cigarettes, including a ban, if those restrictions would be appropriate for the public health. Any ban or material limitation on the use of menthol in cigarettes would materially adversely affect our results of operations, cash flows and financial condition.

It is possible that such additional regulation, including regulation of menthol short of a ban thereof, could result in a decrease in cigarette sales in the United States (including sales of our brands), increased costs to us, and/or the development of a significant black market for cigarettes, which may have a material adverse effect on our financial condition, results of operations, and cash flows.

While I am impressed by Lorillard's outstanding earnings and sales, I am hesitant to recommend the stock until the FDA resolves the matter. In the meantime, I suggest Philip Morris (NYSE:PM), a tobacco company selling outside the U.S., which has been experiencing higher shipment volumes, increasing revenue and earnings, and overall less regulatory and legal intrusion.

Disclosure: I am long PM.