Earnings Preview: Lorillard

Lorillard Inc., the nation's third-biggest cigarette maker, reports its first-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: Whether smokers bought more of Lorillard's top-selling Newport menthol brand and its Maverick discount brand.

While cigarette sales have declined industrywide in recent quarters in the face of tax increases, smoking bans, health concerns and social stigma, Lorillard, based in Greensboro, N.C., has sold more cigarettes in recent quarters. That compares with declines for the two bigger U.S. tobacco companies -- No. 1 Philip Morris USA, the maker of Marlboro and owned by Altria Group Inc., and No. 2 Reynolds American Inc., the maker of Pall Mall Blue and Camel.

The weak economy and high unemployment have caused some smokers to trade down to cheaper brands during the recession in a bid to save money. Lorillard's Maverick and Reynolds American Inc.'s Pall Mall brands have been among the beneficiaries.

In addition, the market for menthol cigarettes, which Lorillard dominates, is still growing.

Lorillard is battling to keep its roughly 35 percent share of the U.S. market. Newport saw its volumes increase 2.2 percent last quarter, but its top competitors have ramped up efforts to grab some of the menthol market.

Lorillard, the oldest continuously operating U.S. tobacco company, spun off from Loews Corp. in 2008.

It is the last of the country's top tobacco companies to report its first-quarter results. Altria said the number of cigarettes it sold fell 6.4 percent to 31.9 billion cigarettes, while Reynolds said its cigarette volumes fell 5.2 percent to 17.2 billion cigarettes during the quarter.

Analysts also will be looking at how the nonmenthol version of Newport released in November has performed.

WHY IT MATTERS: Continued strong performance by Maverick could mean smokers are still switching to cheaper brands to save money because they have less discretionary income, and that those who tried the brand during the recession are remaining loyal.

A rebound in overall cigarette volumes could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes. Other companies are selling fewer cigarettes, but their revenue has risen with higher prices.