Money smells of menthol at Lorillard, the #3 cigarette maker in the US (behind Philip Morris USA and Reynolds American). Newport, Lorillard's flagship brand, is its best-selling menthol cigarette and #2-top selling cigarette brand in the US. It accounts for more than 85% of Lorillard's sales. Other brands include the premium and discount lines of Kent, Old Gold, True, and Maverick. The company sells its lineup to wholesale distributors (who supply retail and chain stores, and government agencies). Lorillard was known as the Carolina Group until 2008, when it split from former parent Loews. Founded in 1760 by French immigrant Pierre Lorillard, it is the nation's oldest continuously operating tobacco business.
Despite the declining number of American smokers, Lorillard is maintaining its financial momentum. Year-over-year net income has increased approximately 7% to 9% between 2009 and 2011. In 2011 sales rose 9% from the prior year, driven by higher sales volume and higher pricing, offset by an increase in sales incentives. Total wholesale unit volume inched up almost 7% over 2010. Volume shipments of the Newport brand of menthol cigarettes increased some 6%. Reflecting the sputtering economy, shipments of Maverick, the company's discount brand, increased 16% compared to 2010.
The rise in wholesale shipments contrasts with the domestic cigarette industry's decline of more than 3%. Lorillard has strategically introduced a non-menthol version of its Newport brand (Newport Red). In addition, it has strengthened its position in the discount cigarette segment with Maverick. Its five core brands include more than 40 different product offerings, differentiated by price, taste, flavor, length, and packaging.
Lorillard supplies about 500 direct buy customers, primarily wholesale distributors that service more than 400,000 retail outlets, chain stores and government agencies, such as the US Armed Forces. McLane Company comprises more than a quarter of the company's sales. The cigarette maker purchases more than 70% of its tobacco from Alliance One International (formerly DIMON).
Lorillard and its rivals face an ever challenging regulatory environment following the passage of the Family Smoking and Tobacco Control Act by the US Congress in June 2009. The landmark legislation grants the US Food and Drug Administration (FDA) substantial power to regulate tobacco products, including authority over marketing, as well as candy flavorings (such as menthol) and nicotine in tobacco products.
Responding, the cigarette maker, along with Reynolds American and others, filed suit against the FDA protesting its "unprecedented restriction" of First Amendment rights. In 2010 a court axed the law's ban on using color and graphics in certain tobacco products and on statements by tobacco makers about the regulation; a subsequent ruling in 2012 by a federal judge declared unconstitutional the FDA's requirement for stronger warnings and pictures on the top half of cigarette packages. An appeal by the Justice Department in the US Court of Appeals for the District of Columbia is set for April 2012.
An equally significant legal challenge that Lorillard and other cigarette makers face is small scale civil litigation from individual plaintiffs seeking significant judgments. For example, a Florida court in spring 2012 ordered Lorillard to pay a widow $25 million in punitive damages after she was awarded $16 million in compensatory damages. The company plans to appeal.