About Lorillard Tobacco Company

Money smells of menthol at Lorillard, the #3 cigarette maker in the US (behind Philip Morris and Reynolds American). Flagship brand Newport is its best-selling menthol (an non-menthol) cigarette and #2-top selling cigarette name in the US, accounting for about 86.5% of sales. Other brands include the premium and discount lines of Kent, Old Gold, True, and Maverick, as well as the blu e-cigarette. 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. The company is the nation's oldest continuously operating tobacco business.

Change in Company Type

Lorillard is exploring a potential acquisition by rival Reynolds American . (RAI). In connection with the $27 billion deal, Lorillard and RAI are in discussions with Imperial Tobacco Group in the UK regarding the sale of certain assets and brands owned by the two companies to Imperial. Nevertheless, the proposed combination of the #2 and #3 cigarette makers in the US has come under the scrutiny of Antitrust authorities who have extended the antitrust probes. The deal is expected to close in 2015. 

Geographic Reach

Lorillard serves customers in US, including its possessions and territories, and the UK.

Operations

The company makes cigarettes and electronic cigarettes. Its brands include Newport, Kent, True, Maverick, Old Gold, and blu eCig.

Sales and Marketing

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 accounts for nearly 29% of the company's sales. The cigarette maker purchases more than two-thirds of its tobacco from  Alliance One International (formerly DIMON).

The company supplies some 400 direct buying customers which provide blu eCigs electronic cigarettes to 176,000 retail accounts in the US.  blu (U.K.) sells electronic cigarettes through retail outlets in the UK. It also sells directly to customers online.

Financial Performance

Lorrilard's revenues grew by 1% in 2014. Net sales from Lorillard's cigarette segment increased by 1.6% in 2014 thansk to higher prices, partially offset by lower unit sales volumes.

Electronic cigarette sales decreased by 28%, as a result of the impact of a lower price on rechargeable kits that were introduced in 2013, partially offset by sales from 2014 product launches, (including blu eCigs PLUS+ kit and tank products and cherry disposable products).

In 2014 Lorrilard's net income increased by 1% due to higher sales and a decrease in selling, general, and administrative costs (down 2.6% due to the absence of the $20 million in estimated costs to comply with or otherwise resolve the U.S. Government Case judgment incurred in the first quarter of 2013).

Cash flow from operating activities increased by 11% in 2014, due to a decrease in inventory and pension and post-retirement contributions, and higher depreciation and amortization, partially offset by a decline in accounts payable and accrued liabilities, a decrease in accrued settlement costs, and higher tax payments.

Strategy

The tobacco company is also chasing after the fast-growing electronic cigarette market as more restaurants, companies, and municipalities cave to antismoking campaigns.

Mergers and Acquisitions

Delving further into the fast-growing market for electronic cigarettes, Lorillard acquired the assets and operations of SKYCIG, a UK-based electronic cigarette business in October 2013 for about £30 million ($48.6 million). Lorillard plans to pay another $48.6 million in 2016 if certain financial benchmarks are achieved. SKYCIG will operate as a separate subsidiary of Lorillard.

Company Background

In April 2012 Lorillard acquired blu ecigs, an electronic cigarette company based in Charlotte, North Carolina, for $135 million in cash in its effort to capture this niche of the market with a top brand. Without the tobacco smoke, ash, or smell of a real burning cigarette, blu ecigs help smokers looking to kick the habit maintain the social aspects of lighting up. As part of the agreement, blu ecigs operates as a subsidiary of Lorillard, which expects to give the blu ecigs brand a boost with its experience in regulatory issues and established infrastructure.

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 was heard in April 2012, with a decision to be announced at a later date.

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 planned to appeal.

Investment firm BlackRock owns about 11% of Lorillard's shares.

The company was founded in 1760 by French immigrant Pierre Lorillard.

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Lorillard Tobacco Company

714 Green Valley Rd
Greensboro, NC 27408-7018
Phone: 1 (336) 335-6600
Fax: 1 (336) 335-7550
www.lorillard.com

Stats

  • Employer Type: Public
  • Vice President Sales And Marketing: George Baroody
  • Chm: Murray Kessler
  • Sr Vp Fin-cao-treas: Thomas R Staab

Major Office Locations

  • Greensboro, NC

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