Big Tobacco may not be dying after all. Lorillard (LO), the tobacco giant behind Newport and Kent brand smokes, is now getting almost 4 percent of its revenue from electronic cigarettes.
The North Carolina-based company says its Blu e-cigarette brand posted $63 million in sales in the recent quarter, a brisk trade that helped push Lorillard’s total sales up 10 percent, to $1.8 billion. The company estimates that it now holds about half of the U.S. market for e-cigarettes, which heat a liquid cocktail of nicotine to create a smokeless vapor. Its e-cig sales have risen almost fivefold in the past year thanks to a national TV advertising campaign featuring Jenny McCarthy and “strong repeat purchases,” Lorillard says.
Wells Fargo (WFC) pegs the global market at $2 billion and estimates it will top $10 billion by 2017. Bloomberg Industries projects that at their current pace, e-cigarette sales will surpass those of traditional smokes by 2047.
Although the Blu brand is the most popular e-cig product in the world, according to Lorillard, the company is also building its line of e-cigarettes abroad. Earlier this month it bought British brand Skycig for $49 million in cash.
Lorillard, which has a cigarette R&D team in Silicon Valley, has actually been selling more traditional smokes lately. It moved almost 10.5 billion fire-fueled cigarettes in the recent quarter, 3.5 percent more than a year earlier, and has even been charging more for its old-fashioned tobacco products. But the company also had to fork over $79 million in damages tied to a decade-long product-liability fight in Massachusetts, and regulators are still questioning the harm of Big Tobacco’s menthol offerings.
“I still think we’re looking at an industry that’s declining,” Lorillard Chief Executive Officer Murray Kessler said on a conference call this morning. While there’s plenty of debate about the safety of e-cigarettes, if they can help big tobacco companies avoid—or at least offset—massive one-time costs from lawsuits and regulatory battles, investors will be cheering.
Much will depend on how hard of a line the government takes on e-cigarette rules, which are being hammered out now. “If the FDA does overly strict regulations and reads it just like cigarettes … you’re going to get a different trajectory in the category than you’re going to get if they recognize, again, that this is somewhat different on the continuum of risk,” Kessler said.
For the time being, smokeless cigarettes play an important part in Lorillard’s “comprehensive tobacco harm-reduction strategy,” as Kessler termed it. That’s “harm-reduction” for shareholders—and possibly smokers as well.