Tobacco.org

• UPDATE 2-Lorillard starts CEO succession review  

Lorillard Inc (LO.N) had begun reviewing options for succession to CEO Martin Orlowsky, whose contract expires on Dec. 31, 2010, the third-largest U.S. cigarette maker said on Thursday .

The board will weigh "all relevant options," the company said in a filing with the U.S. Securities and Exchange Commission.

A spokeswoman for Lorillard declined to comment further on the succession options.

Orlowsky, 67, has been president and chief executive since 1999 and became chairman in 2001. Lorillard was spun off from Loews Corp (L.N) in June 2008.

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• Special Tobacco Analysis, Pt. 1 Big Tobacco Fights for Share  

Cigarettes' big three—Altria, R.J. Reynolds and Lorillard—are facing aggressive challenges from down trading and segment shifting in the convenience-store channel.

The nation's top three brands—Marlboro, Camel and Newport—are battling to hold onto market position in the convenience channel, some six months since Congress approved a record increase in the federal excise tax (FET) to finance expansion of the national children's insurance program, SCHIP.

Based on an exclusive survey conducted by CSP Daily News and UBS Tobacco Analyst Nik Modi, Lorillard appears to be the safest of the three.

Responding to the survey question asking, "Are you seeing substantial trade down from the big three premium brands?" half of the survey respondents said yes.

Asked which of the three premium brands are seeing the most negative pressure, about 40% named Marlboro specifically, and another 40% cited Camel or other Reynolds' brands such as Winston and Salem,

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• UPDATE 2-Lorillard 3rd-qtr profit below estimates  

Newport cigarette maker Lorillard Inc (LO.N) posted a lower-than-expected quarterly profit as wholesalers cut back on cigarette inventories and the company offered more special promotions to spur sales.

Lorillard said on Monday third-quarter profit was $235 million, or $1.44 a share, compared with $237 million, or $1.38 a share, a year earlier. Per-share profit rose because of a decline in shares outstanding.

Analysts on average forecast $1.52 a share, according to Thomson Reuters I/B/E/S. . . .

Last week, Lorillard competitor Altria Group Inc (MO.N) posted lower-than-expected quarterly revenue as cigarette volume dropped 16.4 percent. [ID:nN17379270]

Another rival, Reynolds American, also saw volume fall more than expected.

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• CLEARY v. PHILIP MORRIS, INC.  

Brian Cleary and Rita Burke, representing a putative class, have sued several tobacco companies and tobacco-related entities. This case was filed in state court in 1998. Defendant Lorillard Tobacco Co. removed it to this Court after plaintiffs filed a third amended complaint on March 3, 2009. In their third amended complaint, plaintiffs make several claims against the defendants on behalf of Illinois residents. Among other claims, plaintiffs allege that defendants deceptively marketed "low tar," "light," and "ultra light" cigarettes as being safer than regular cigarettes, although they were equally dangerous. Defendants have moved for judgment on the pleadings with respect to these claims on the ground that they are time-barred. For the following reasons, the Court grants the motion as to the defendants other than Philip Morris but defers ruling as to Philip Morris. . . .

For the foregoing reasons, the Court grants defendants' motion for judgment on the pleadings concerning Count 3 of the third amended complaint [docket no. 85] as to all defendants other than Philip Morris. The Court directs Philip Morris to show cause, by no later than September 21, 2009, why the Court should not vacate the state court's interlocutory order dismissing the light cigarettes claim. Pending ruling on that matter, the Court defers consideration of whether the Marlboro Lights claims in the third amended complaint relate back to the date the plaintiffs filed the first amended complaint. The case is set for a status hearing on September 23, 2009 at 9:30 a.m.

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• 21 charged in cigarette tax-evasion scheme; probe also snared bomb suspect  

A Yonkers man is among 21 cigarette-smuggling suspects charged with evading the state tobacco tax in a sting operation that also netted a cache of homemade bombs and weapons inside Cortlandt man's home.

The cigarette bust, which cost the state $21 million in lost taxes, was the largest of its kind in the United States, a state official said at a news conference this afternoon at the Westchester County District Attorney's Office.

"There will be more arrests, I'm confident," said William Comiskey, the deputy commissoner of taxation and finance. "This is just one type of activity they're involved in."

Ibrahim Althnaibat, 49, of Willow Street in Yonkers was one of the alleged "middle men" arrested in the sting, joining 20 others from the five boroughs of New York, Pennsylvania, and Virginia.

The sting also led to Thursday's arrest of 52-year-old Gary Burstell of Cortlandt, where police said they found homemade bombs, 14 rifles, thousands of rounds of ammunition and $500 worth of fireworks during a raid of his home. . . .

They bought cartons of cigarettes straight from the manufacturers - mostly Newport and Marlboro - and started selling them out of a Yonkers garage.

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• Tobacco Companies Sue to Loosen New Limits 

Most of the nation's largest tobacco companies filed a free-speech lawsuit on Monday in Kentucky to try to stop a landmark federal law from curtailing their marketing or forcing them to print graphic warnings on the top half of cigarette packages next year.

The first lawsuit against the new law, which was signed in June by President Obama, is likely to end up before the United States Supreme Court, lawyers on all sides of the issue said on Monday. In 2001, the Supreme Court rejected outdoor advertising restrictions in tobacco regulations in Massachusetts, ruling 6-3 that it violated free speech rights.

"The case is likely to proceed quickly," Floyd Abrams, a constitutional lawyer who is representing the Lorillard Tobacco Company, said in a phone interview on Monday. "Tobacco is a legal product for adults, and the Supreme Court has said that the industry has an interest which the First Amendment protects to communicate information about its products, and adults have the right to receive that information."

Anti-tobacco lawyers said the federal legislation was carefully worded to withstand just such a legal test.

"It was perfectly clear there was going to be a constitutional challenge, and I think it will survive the challenge," Richard A. Daynard, a professor at the Northeastern School of Law in Boston and chairman of its Tobacco Products Liability Project, said in a phone interview. . . .

Clifford E. Douglas, a lawyer and executive director of the University of Michigan Tobacco Research Network, countered, "If there's any commercial speech that it is constitutional to restrict, it's the type of marketing covered in this legislation." . . .

David M. Sylvia, a spokesman for Altria, said on Monday that the company has its own free-speech concerns about some parts of the law, "but at this point in time we're not commenting on our strategy about how we're handling that." He said Altria had not yet reviewed the lawsuit.

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• COMMONWEALTH BRANDS, et. al. v. FDA (PDF) 

COMMONWEALTH BRANDS, INC.; CONWOOD COMPANY, LLC; DISCOUNT TOBACCO CITY & LOTTERY, INC.; LORILLARD TOBACCO COMPANY; NATIONAL TOBACCO COMPANY, L.P.;and R.J. REYNOLDS TOBACCO COMPANY,

v.

UNITED STATES OF AMERICA; UNITED STATES FOOD AND DRUG ADMINISTRATION; MARGARET HAMBURG, Commissioner of the United States Food and Drug Administration; and KATHLEEN SEBELIUS, Secretary of the United States Department of Health* and Human Services, . . .

WHEREFORE, Plaintiffs pray that this Court:

(A) enter a judgment declaring the Act’s speech restrictions, both individually and collectively, to be an unconstitutional abridgement of Plaintiffs’ free speech rights under the First Amendment to the United States Constitution;

(B) enter a judgment declaring that the Act’s warning label and black-and-white text provisions, individually and collectively, effect an unconstitutional taking in violation of the Fifth Amendment to the United States Constitution;

(C) enter a judgment declaring that the Modified Risk Tobacco Products provision violates Plaintiffs’ due process rights under the Fifth Amendment to the United States Constitution;

(D) enter a judgment declaring that the provision allowing modification by the Secretary of the outdoor advertising ban violates Plaintiffs’ due process rights under the Fifth Amendment to the United States Constitution;

(E) enter a judgment declaring that the Act’s restrictions herein challenged collectively effect an unconstitutional taking in violation of the Fifth Amendment to the United States Constitution;

(F) enter a judgment declaring that the Act’s provisions allowing the enactment of additional or more stringent laws is an unconstitutional infringement of Plaintiffs’ free speech

rights and an unconstitutional delegation of legislative power to entities outside the Legislative Branch;

(G) enter, after hearing, a preliminary injunction, pending final resolution of this action, enjoining Defendants from taking any action to enforce the Act;

(H) enter a permanent injunction enjoining Defendants from enforcing the Act’s restrictions herein challenged; and

(I) grant Plaintiffs such additional or different relief as it deems just and proper, including an award of reasonable attorneys’ fees and the costs of this action. 6. In short, while each of these provisions individually violates the Constitution, collectively, the Act’s provisions cut off nearly every currently-available avenue of tobacco advertising and marketing. In so doing, they run afoul of Plaintiffs’ rights to free speech and due process, and effectuate an unconstitutional taking of private property, in violation of the First and Fifth Amendments by, among other things, chilling Plaintiffs’ right to participate in scientific and political debates surrounding their products, unduly restricting Plaintiffs’ right to engage in commercial speech, and confiscating Plaintiffs’ packaging, advertising, and intellectual property for an anti-tobacco message drafted by the Government. Plaintiffs therefore respectfully request that this Court declare the challenged provisions of the Act in violation of the First and/or Fifth Amendments to the United States Constitution and enjoin the Government from enforcing these unconstitutional provisions.

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• UPDATE 3-Reynolds,others sue to stop parts of US tobacco law  

A group including some top U.S. tobacco companies filed a federal lawsuit on Monday to block provisions of a new tobacco law, arguing it violated their free speech rights under the U.S. constitution.

R.J. Reynolds Tobacco Co, a unit of Reynolds American Inc (RAI.N) that makes Camel and Winston cigarettes, and Lorillard Inc (LO.N), which sells the Newport menthol brand, were among those seeking to void parts of the law.

Altria Group Inc (MO.N), which makes Marlboro cigarettes and is the largest U.S. tobacco company, is not involved in the case after breaking with rivals to support the law. . . .

While not challenging the FDA's authority to regulate tobacco products, tobacco companies say the law goes too far in limiting their commercial speech rights in light of existing bans on television and radio advertisements.

"Even prior to the act, plaintiffs had few avenues of communication for speaking to their adult consumers," the companies said in the lawsuit filed in a federal court in Kentucky. "The act imposes sweeping and unprecedented restrictions that effectively foreclose those avenues of communication that remain." . . .

"The tobacco companies have a very legitimate claim based on the Supreme Court's own rulings," Michael Siegel, professor of community health sciences at Boston University's School of Public Health.

"I question why the crafters of the legislation did not deal with the First Amendment issue appropriately," he added. "A ruling for the companies would negate a good portion of this legislation."

Edward Sweda, chief attorney for the Tobacco Products Liability Project at Northeastern University School of Law in Boston, said the tobacco companies already agreed to some advertising restrictions as part of a landmark legal settlement with U.S. states in 1998.

The companies are asking the court to overturn bans on the warning labels, using color and graphics in labels and advertising, some outdoor advertising and sponsorships of sporting and other events.

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• Tobacco companies can help reignite your portfolio  

We think the worst-case scenario for the industry under FDA regulation would be a reduction in the amount of nicotine, the addictive component of cigarettes, being forced upon manufacturers. However, it is likely that industry stakeholders would pressure the FDA not to implement such a measure. Just as smokers are addicted to tobacco companies' products, governments are addicted to the tax revenue the products generate. We estimate that total excise tax and MSA payments will be well in excess of $40 billion in 2009, or around 1% of all local, state, and federal taxes collected, and around two thirds of all excise tax receipts. In the case of the MSA payments to states, the states have in many cases already securitized that revenue and therefore are heavily reliant on the payments being made.

The risk of litigation still lingers over the domestic tobacco industry, although it has subsided significantly in the past few years. We expect financial penalties to arise periodically, but we think damages will be manageable.

We think the downward pressure on tobacco stocks over the past 18 months has presented investors with an opportunity to buy the industry leaders. We think Altria has the widest moat in the industry, with a vast distribution network and collection of strong brands. . . .

Although we think Lorillard's Newport is a very strong brand, the firm's exposure to the menthol category is a concern to us, given the threat hanging over that sector. We expect Reynolds American to underperform the industry because it has an older core customer demographic and we expect it to discontinue some of its peripheral brands.

Emerging economies such as Eastern Europe, Africa, and parts of Asia still offer growth opportunities. . . .

We think the best way to exploit the growth opportunities in international tobacco markets is with an investment in the industry leader, Philip Morris. The firm owns Marlboro in international markets, the only true global brand . . .

We rate British American Tobacco similarly to Philip Morris: Both have wide economic moats, both have only a medium uncertainty rating, and their dividend yields are also closely matched, BAT at 4.5% and Philip Morris at 4.9%.

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• LETTER: Don’t forget Lorillard’s impact on Greensboro 

Foremost, my fundamental perception is tobacco companies have the constitutional right to produce legal products for sale.

For 37 years, I have operated a business on East Market Street seven blocks from Lorillard Tobacco Co.’s manufacturing facility. An appreciable number of our customers and friends are Lorillard employees. Prior to Lorillard becoming operational in 1955-56 and beginning to employ people, the East Market Street quadrant was a blighted area. Lorillard helped the area most significantly pursuant to employment.

I am exceedingly knowledgeable of the continuous discussions associated with health and smoking. My immediate concerns coincide with jobs and Lorillard’s published statements: “We continue to support our good jobs and support worthy community causes.” Moreover, Steven C. Watson, then vice president for external affairs of Lorillard Tobacco Co., stated in a Jan. 23, 2001, letter: “Our corporate policy is kids should not smoke.”

Finally, an overwhelming number of people were unrelentingly exuberant when billboards marketing cigarettes had to be taken down on April 24, 1999, pursuant to the 1998 tobacco settlement. Earl Gill Greensboro

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• Senate committee approves stricter smoking ban 

The state Senate's Health Committee voted Wednesday for a strict smoking ban in North Carolina — and eliminated plans to exempt bars and nightclubs from the restrictions.

State Sen. Bill Purcell of Scotland County, a physician and leading advocate for the ban, hopes to bring the bill for a floor vote in the Senate as soon as today.

Much of the rhetoric during the debate on the legislation echoed previous arguments. Proponents said a broad ban on smoking is necessary to protect the health of workers and the public in general. Opponents said individual business owners should decide whether to have smoking on their premises.

But for the first time since the legislature began debating the issue in February, a representative from a tobacco company spoke up.

The ban will hurt North Carolina workers, argued Michael Shannon, speaking on behalf of the Lorillard Tobacco Co. in

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• Lorillard, Inc. Reports First Quarter 2009 Results 

Highlights

* Net sales were $917 million for the first quarter of 2009, compared to $921 million for the first quarter of 2008.

* Wholesale shipment volume was down 7.6% primarily as a result of wholesale inventory adjustments related to the increase in the federal excise tax as of April 1, 2009.

* Operating income increased 10.5% to $294 million, or 32.1% of sales.

* Net income increased 5.7% to $184 million, or $1.09 per share (basic).

* Newport retail market share increased by 0.2 points over the year ago period to 10.1%.

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• Ask SAM 

Q. An ad in Monday's Winston-Salem Journal, paid for by the North Carolina Taxpayers Alliance, urged readers to call state Sens. Linda Garrou and Pete Brunstetter to "take a stand" against higher tobacco taxes. Who is behind this alliance? -- K.O.

A. The members of the alliance, according to the Raleigh News & Observer, are tobacco interests: tobacco companies Reynolds American, Lorillard, Universal Leaf and Swedish Match; the N.C. Tobacco Growers Association; and the Cigar Association of America. The alliance is running ads in several newspapers across the state

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• Will Lorillard Meet Its Match? ($$) 

ONE OF THE MOST VALUABLE and lucrative, if controversial, consumer products in the world is Newport cigarettes.

Newport's manufacturer, Lorillard (ticker: LO), essentially is a one-product company. It has a market value of more than $10 billion, roughly equal to that of Heinz (HNZ) or Campbell Soup (CPB). While smaller than rivals Reynolds American (RAI) and Altria (MO), Greensboro, N.C.-based Lorillard has the highest profit margins in the U.S. cigarette industry. It also has one of the best growth outlooks, thanks to the strength of the Newport menthol brand, which is popular with black and Hispanic smokers, particularly in the Northeast.

Lorillard's fans in the investment community say that the company is underappreciated on Wall Street -- partly because of its involvement in tobacco -- and that it is the most attractive takeover target in the consolidating global cigarette industry. There lately has been talk that Reynolds, maker of the Camel, Winston and Kool brands, might buy Lorillard for a sizable premium above the recent share price of $61. Reynolds and Lorillard declined to comment.

Deal or no deal, Lorillard looks appealing.

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• Lorillard could be takeover target - Barron's 

Lorillard Inc (LO.N), maker of Newport cigarettes, could be a takeover target, perhaps at a "sizable" premium to its current share price, according to the latest issue of Barron's.

"There lately has been talk that Reynolds (RAI.N), maker of the Camel, Winston and Kool brands, might buy Lorillard for a sizable premium above the recent share price of $61," Barron's reports in its March 23 issue.

It said Reynolds and Lorillard declined to comment.

Barron's also reports that, "If Lorillard does go on the block, there could a bidding war that includes Reynolds, Britain's Imperial Tobacco (IMT.L), Japan Tobacco (2914.T) and perhaps even Philip Morris International (PM.N)."

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