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 cigarette and #2-top selling cigarette name in the US, accounting for about 85% 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. Founded in 1760 by French immigrant Pierre Lorillard, it is the nation's oldest continuously operating tobacco business.

Change in Company Type

Lorillard is exploring a potential acquisition by rival Reynolds American Inc. (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 the first half of fiscal 2015. 

Geographic Reach

Lorillard rings up 100% of its sales in the US, including its possessions and territories.

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 30% of the company's sales. The cigarette maker purchases more than two-thirds of its tobacco from  Alliance One International (formerly DIMON).

Financial Performance

Despite the declining number of American smokers, Lorillard is maintaining its long-history of financial momentum and is continuing to gain market share. The cigarette maker's sales approached $7 billion in 2013, an increase of 5% versus 2012, capping a decade-long stretch of sales growth. Higher average unit prices for its cigarettes, reflecting price increases in 2013 and 2012, outweighed declining volume sales.

Domestic wholesale shipments of Maverick, the company's leading discount brand, decreased by 5% in 2013 versus 2012 (after posting a 4% increase in the previous annual comparison). Lorillard also received $230 million (or about 3%) of its sales from blu ecigs, its electronic cigarette brand, acquired in spring 2012, versus $61 million or (about 1%) in 2012.

Net income increased 7% in 2013 compared with 2012, driven by higher sales combined with a lower cost of sales.

Lorillard's share of the US cigarette retail market climbed to 14.9% in 2013 (versus 12.9% in 2010), while its share of the premium cigarette market reached 17.3% (vs. 15.2% in 2010), and its menthol market share hit 40.3% (vs. 38.4% in 2010).

Strategy

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

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 founded in 2011, 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.

Ownership

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

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Lorillard Tobacco Company


714 Green Valley Rd
Greensboro, NC 27408-7018
Phone: 1 (336) 335-6600
Fax: 1 (336) 3357550
www.lorillard.com

STATS


  • Employer Type: Unknown
  • Chief Executive Officer: Rich Belongia
  • President: Loenard Jones
  • Sr Vp Fin-cao-treas: Thomas Staab

Major Office Locations

  • Greensboro, NC
  • Greensboro, NC

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