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Lorillard To Report Q2 Results: Earnings Preview

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Cigarette manufacturer Lorillard, Inc. (LO) is scheduled to report second-quarter results before the market opens Monday.

The Greensboro, North Carolina-based company, founded in 1760, offers 41 product offerings under brand names such as Newport, Kent, True, Maverick, Old Gold, and Max that cater to smokers speared across a wide scale of income.

With increasing health concerns as well as tax hikes, cigarette makers are facing a tough time. Additionally, recession has forced many of them to shift to cheaper brands. When Lorillard reports results later in the day, an area of investor focus would the company's volume gains in the quarter. Industry-wide cigarette volumes fell 7.1% in the second quarter.

A Food and Drug Administration review is currently in progress about the health risk of use of menthol in cigarettes. Lorillard's menthol cigarette Newport is its top-selling brand. The Tobacco Products Scientific Advisory Committee, or TPSAC, asked Lorillard to share its expertise and research on several issues related to the use of menthol in cigarettes and the company has submitted comments containing scientific and technical information on the subject.

"TPSAC should ground its principles and analysis in sound science...An objective analysis of the science surrounding menthol shows that menthol does not increase the health risks of cigarette smoking and that menthol cigarettes do not play a unique role in starting smoking, stopping smoking or in smoking dependence," Lorillard said last week.

Following the FDA advisory meeting, Credit Suisse said last week that Lorillard is not as weak as it thought. ''It appears that the FDA will create a report sub-committee to draft the final recommendation before a full committee vote on it but we do not know yet, if the draft will be developed publicly. Independent of the recommendation we still do not believe that the FDA would ultimately ban menthol, " the brokerage said. The final menthol recommendation is expected in March 2011.

Credit Suisse raised its second-quarter adjusted earnings per share estimate on Lorillard to $1.59 from $1.56 due to improved volume expectations, which would only be partially offset by reduced pricing.

On average, 9 analysts polled by Thomson Reuters expect America's oldest tobacco company to have earned $1.61 per share in the second quarter, with estimates ranging between $1.50 and $1.72 per share. Revenue for the quarter is estimated to be $1.01 billion. Analysts' estimates typically exclude special items.

In the year-ago period, net income amounted to $286 million, or $1.71 per share. Net sales for the second quarter of 2009 totaled $1.519 billion and $1.033 billion when excise taxes were deducted. Wholesale shipment volume grew 2.1% year-over-year.

In the first quarter of the current fiscal, the company's net income totaled $232 million or $1.50 per share on net sales of $1.36 billion. Excluding excise tax, net sales were $923 million in the period. Wholesale shipment volume increased 12.1% from the previous year.

Cigarette maker Altria Group, Inc. (MO) early this month reported a marginal rise in second-quarter profit, while revenues rose nearly 7% year-over-year. Total cigarette volume declined 10.2% in the quarter.

Reynolds American, Inc. (RAI) last week reported a nearly 10% drop in second-quarter profit, hurt mainly by costs. Revenues were almost flat with the previous year. The company's shipping volume was down 9.5% from a year earlier.

LO closed Friday's regular trade at $76.30, up $0.39 or 0.51%, on 919,561 shares. For the past year, the stock traded in the range of $70.24-$82.26.

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