Lorillard Inc. Earnings Cheat Sheet: Margins Shrink on Rising Costs, Net Income Falls

S&P 500 (NYSE:SPY) component Lorillard Inc. (NYSE:LO) reported its results for the third quarter. Lorillard manufactures and sells cigarettes and tobacco under the brand names of Newport, Kent, True, Maverick, and Old Gold.

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Lorillard Earnings Cheat Sheet for the Third Quarter

Results: Net income for the cigarette company fell to $267 million ($1.94 per share) vs. $274 million ($1.81 per share) a year earlier. This is a decline of 2.6% from the year earlier quarter.

Revenue: Rose 3.5% to $1.62 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: LO fell short of the mean analyst estimate of $2.04 per share. It beat the average revenue estimate of $1.14 billion.

Quoting Management: “Lorillard fundamentals remained extremely strong in the third quarter, although as we expected shipments were negatively affected by changes in wholesale inventory patterns versus last year. Wholesale shipments of Lorillard products to retail, which are unaffected by changes in wholesale inventory, increased over 8% versus year ago. And, the Company achieved significant market share gains in all market categories and all sales regions,” said Murray S. Kessler, Chairman, President and Chief Executive Officer. “Continued strong fundamentals combined with normalized wholesale inventories bode well for a strong fourth quarter finish to an already outstanding 2011.”

Key Stats:

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the second quarter, net income rose 10.6% from the year earlier, while the figure increased 6.9% in the first quarter, 7% in the fourth quarter of the last fiscal year and 16.6% in the third quarter of the last fiscal year.

Gross margin shrank 1.4 percentage points to 34.7%. The contraction appeared to be driven by increased costs, which rose 5.8% from the year earlier quarter while revenue rose 3.5%.

Revenue has risen the past four quarters. Revenue increased 11.3% to $1.69 billion in the second quarter. The figure rose 12.9% in the first quarter from the year earlier and climbed 7.8% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company fell short of forecasts after beating estimates in the previous two quarters. In the second quarter, it topped the mark by 3 cents, and in the first quarter, it was ahead by 14 cents.

Looking Forward: Expectations for the company’s next quarter performance are higher than they were ninety days ago. Over the past three months, the average estimate for the fourth quarter has risen to $1.97 per share from $1.95. The average estimate for the fiscal year is $7.75 per share, down from $7.77 ninety days ago.

Competitors to Watch: Reynolds American, Inc. (NYSE:RAI), Altria Group, Inc. (NYSE:MO), Vector Group Ltd. (NYSE:VGR), Philip Morris Intl. Inc. (NYSE:PM), British American Tobacco (AMEX:BTI), Star Scientific, Inc. (NASDAQ:CIGX), Imperial Tobacco Group PLC (ITYBY), Alliance One Intl., Inc. (NYSE:AOI), and Universal Corporation (NYSE:UVV).

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(Source: Xignite Financials)