By Ben Fox Rubin 
 

Lorillard Inc. (LO) said fourth-quarter earnings declined 5.2%, as the cigarette maker posted higher product costs, though volumes of its top brand and electronic cigarette sales improved.

Lorillard reported a profit of $293 million, down from $309 million a year earlier. Per-share earnings were flat at 80 cents, due to fewer shares outstanding in the latest quarter. Excluding amortization expenses and other items, per-share earnings rose to 82 cents from 79 cents. Sales grew 2.3% to $1.74 billion, though product costs were also up 2.3%.

Analysts surveyed by Thomson Reuters had projected a profit of 86 cents a share and sales of $1.31 billion.

The company, which sells Newport cigarettes, reported total wholesale shipments fell 1.6%. However, volume for the Newport brand, which represents a bulk of its sales, rose 0.4%.

Tobacco companies have been challenged by declining demand for traditional cigarettes over recent years, especially as a weak economy pressures consumers' disposable income. Lorillard, based in Greensboro, N.C., has entered the e-cigarette market more aggressively than larger U.S. tobacco rivals Altria Group Inc. (MO) and Reynolds American Inc. (RAI), purchasing the Blu e-cigarettes company in 2012 for $135 million and making it into the industry leader.

Sales of e-cigarettes, which turn nicotine-laced liquid into vapor, are growing quickly as traditional cigarettes face more public-smoking bans and are viewed as more harmful due to combustion. The company's fourth-quarter electronic cigarette sales grew 38% to $54 million from a year earlier, while traditional cigarette sales rose 1.4% to $1.69 billion.

Write to Ben Fox Rubin at ben.rubin@wsj.com

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