Drop in e-cigarette sales hurts Lorillard's 2Q profit amid acquisition by Reynolds American



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RICHMOND, Virginia — Newport maker Lorillard Inc.'s profit fell 4.2 percent in the second quarter as sales of its market-leading Blu electronic cigarettes dropped and it sold fewer cigarettes.

The nation's No. 3 tobacco company, which is being acquired by competitor Reynolds American Inc., said Wednesday that e-cigarette sales to fall 35 percent to $37 million in the quarter as it faced increased competition from Reynolds and Altria Group Inc., which both began to expand their own e-cigarette brands nationally during the quarter.

Lower prices on its rechargeable e-cigarette kits also hurt its bottom line, but the brand still held more than 40 percent of the U.S. market.

The tobacco industry is focusing on cigarette alternatives like e-cigarettes for future sales growth because the decline in cigarette smoking is expected to continue. E-cigarettes heat a liquid nicotine solution which then creates a vapor that users inhale. The market reached nearly $2 billion in sales last year.

The Greensboro, North Carolina-based company bought Blu in 2012 for $135 million. Last year, it bought a U.K.-based electronic cigarette maker for $49 million to expand Blu internationally. The category is growing quickly.

"Despite a challenging quarter on e-cigs domestically, Blu remained the clear industry leader and we remain bullish on the outlook for electronic cigarettes in general," CEO Murray Kessler said in a statement.

The company did not host a conference call with investors regarding its earnings as it awaits its $25 billion deal with Reynolds to close. As part of the deal, Lorillard is selling Blu to the U.K.'s Imperial Tobacco and Reynolds plans to focus on its Vuse e-cigarette brand.

Lorillard said its net income fell to $300 million, or 83 cents per share, from $313 million, or 83 cents per share, in the same quarter a year ago.

Adjusted earnings were 84 cents per share, 4 cents below analyst expectations, according to Zacks Investment Research.

Revenue excluding excise taxes rose to $1.3 billion from $1.29 billion in the same quarter a year ago because of higher cigarette prices. Analysts expected $1.34 billion, according to Zacks.

Shares of Lorillard slipped 66 cents, or about 1 percent, to $60.93 in trading Wednesday. Its shares are up 42.5 percent in the last 12 months.

Lorillard said cigarette shipments fell more than 3 percent during the quarter. Newport shipments fell nearly 2 percent while many of its other brands like Kent, True and Old Gold fell by double digits.

Newport garnered more than 37 percent of the retail menthol market, which is becoming a bigger part of the business even as people smoke fewer cigarettes every year.


AP Business Writer Joseph Pisani contributed to this report.


Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.

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