Lorrilard, symbol LO, released a stunningly good earning report today. Profits were up 26%, which is almost unheard of in the current market. What impressed us even more was that the had a 10% price increase and sales volume actually went up about 6%. Rarely does a tobacco company increase price and expect NOT to lose sales volume. The reason for us is fairly simple however and most analysts will not say this but we will. The largest user of menthol cigarettes made by LO are blacks and the poor. These people are getting added welfare payments and a good bit of unemployment now and they are not spending it on healthcare. LO however is living on the edge with the continued real concern of menthol regulation or outright banning. But we believe that will not happen prior to this year's election. Obama has done some foolish things of late to antagonize his voters but I can not see him banning these from his best voting block.
We dumped all our other tobacco holdings due to high valuation issues We will continue to hold LO as our largest holding for awhile longer unless the price bump of today unexpectantly holds above the $120 level.
No comments:
Post a Comment