"blu ecigs are the perfect adjacency for us to participate in the smokeless market, but in a Lorillard way. That is, e-cigarettes offer many of the benefits of other smokeless products but do so in a way that is familiar and enjoyed by current adult cigarette consumers," explained Lorillard CEO Murray Kessler. "We believe that blu will benefit from Lorillard Tobacco Co.'s regulatory experience and sales infrastructure which are needed for it, and the category, to reach its potential in a responsible manner."
Lorillard announced the acquisition this morning when it released its first-quarter 2012 results. According to the company, Charlotte, N.C.-based blu will be a separate operating company and it is Lorillard's intention to retain blu's current management team and headquarters.
"This is a very exciting time for us and an extremely positive step forward for the electronic cigarette industry, which by nature and age has been lacking a lot of the resources necessary to truly take this product to the next level," said Jason Healy, president and co-founder of blu ecigs, in a statement to CSNews Online.
"I can't overstate what this will mean for consumers, as blu ecigs now has the resources to not only significantly expand its distribution, but also to put much needed resources into expanding our quality and R&D initiatives to ensure that blu consumers continue to have the best product on the market. I have always said that electronic cigarettes have a tremendous responsibility and this step will allow us to ensure that we continue to live up to and exceed that responsibility," he added.
Some in the industry may view the transaction as case of "if you can't beat them, join them." At the Convenience Store News2012 Tobacco Roundtable, John Call of CF Capital Assets said that now would be a good time for convenience store retailers to make a profit from e-cigarettes before major tobacco companies joined the game. Now Lorillard becomes the first of the big three to suit up.
Lorillard's acquisition of blu comes as the tobacco company reports net sales decreased $9 million to $1.526 billion in the first quarter of 2012, compared to $1.535 billion in the first quarter of 2011, a decrease of 0.6 percent. The decrease resulted primarily from lower unit sales volume, which was negatively impacted by trade inventory pattern fluctuations, partially offset by higher average prices.
Total Lorillard wholesale unit volume, which includes Puerto Rico and U.S. Possessions, decreased 2.7 percent for the three months ended March 31, 2012, compared to the corresponding period of 2011. Domestic unit volume, which excludes Puerto Rico and U.S. possessions, decreased 2.5 percent for the three months ended March 31, 2012 compared to the corresponding period of 2011. Changes in wholesale inventory patterns are estimated to have negatively impacted year-ago comparisons by approximately 400 million units, or 4.3 percentage points.
Adjusting for this effect, Lorillard domestic wholesale shipments increased 1.8 percent. Total cigarette industry domestic wholesale shipments decreased an estimated 4 percent for the first quarter of 2012 compared to the first quarter of 2011. Changes in wholesale inventory patterns are also estimated to have negatively impacted year ago comparisons by approximately 2.7 percentage points for the industry.
Total unit volume for Newport, the Lorillard's flagship brand, decreased 4.2 percent for the three months ended March 31, 2012 and domestic Newport unit volume decreased 4 percent for the three months ended March 31, 2012 compared to the corresponding period of 2011.
Based on Lorillard's proprietary retail shipment data, which measures shipments from wholesale to retail and are unaffected by wholesale inventory changes, the tobacco company's domestic retail market share once again posted strong gains in the first quarter of 2012, increasing 0.4 share points to an all-time high market share of 14.5 percent. Newport's domestic retail market share reached 12.2 percent for the first quarter of 2012, an increase of 0.2 share points compared to the first quarter of 2011.
Total Lorillard domestic retail share of the menthol market reached 40 percent for the first quarter of 2012, an increase of 1.0 share point compared to the first quarter of 2011. Continued share gains are attributable to the company's strategic initiatives including the launch of Newport Non-Menthol, geographic promotional expansion of Newport Menthol and continued retail shipment growth on Maverick, according to the company.
Adjusted gross profit was $530 million in the first quarter of 2012, or 34.7 percent of net sales, compared to $543 million, or 35.4 percent of net sales, in the first quarter of 2011.