Scandinavian Tobacco Group A/S Earnings Call Highlights

Scandinavian Tobacco Group A/S ((DK:STG)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call from Scandinavian Tobacco Group A/S painted a picture of both triumphs and trials. While the company celebrated successes such as the integration of Mac Baren and the impressive growth of the nicotine pouch brand XQS, it also faced significant hurdles. Adjusted financial expectations due to external factors, a decline in organic net sales, and a decrease in EBITDA margin were among the challenges highlighted during the call.

Integration of Mac Baren

The integration of Mac Baren is progressing as planned, with notable advancements in the U.S. market. The company has consolidated all U.S. distribution in Bethlehem, Pennsylvania, and has successfully migrated acquired online sales channels into a more streamlined website. This strategic move is expected to enhance operational efficiency and customer experience.

Strong Performance in Retail Channel

The retail channel has been a bright spot for Scandinavian Tobacco Group, delivering robust double-digit net sales growth. This performance underscores the value of the company’s investments in this growth enabler, highlighting retail as a critical component of their overall strategy.

Nicotine Pouch Brand XQS Growth

The XQS brand continues to shine, achieving a remarkable 41% growth rate. This success is largely driven by an increase in market share in Sweden, which has now surpassed 11%. The brand’s impressive performance is a testament to its growing popularity and market penetration.

Free Cash Flow Improvement

Scandinavian Tobacco Group reported a significant improvement in free cash flow before acquisitions, reaching DKK 156 million. This marks a notable turnaround from the negative free cash flow of DKK 126 million recorded in the first quarter of the previous year, reflecting better cash management and operational efficiency.

Adjusted Financial Expectations

The company has adjusted its financial expectations in response to a weaker U.S. dollar and increased tariffs on imported goods by the U.S. government. These factors have negatively impacted the handmade cigar business, prompting a revision of the group’s financial outlook.

Organic Net Sales Decline

Organic growth faced challenges, with a decline of nearly 9%. This includes a 9.1% drop in organic net sales for handmade cigars and a significant 43% decrease for Next Generation Products. These figures highlight the difficulties faced in maintaining sales momentum across different product categories.

EBITDA Margin Decrease

The EBITDA margin saw a decrease of about 1 percentage point, settling at 16.1%. This decline was influenced by lower cigar sales, changes in product mix, and ongoing investments in growth opportunities, which have impacted profitability.

Machine-Rolled Cigar Market Share Decline

The market share for machine-rolled cigars in Europe Branded experienced a decline, with the index falling to 26.9% from 28.1% in the fourth quarter of 2024. This drop indicates competitive pressures and shifting consumer preferences in the European market.

Forward-Looking Guidance

During the Q1 2025 conference call, Scandinavian Tobacco Group updated its guidance to reflect various external factors affecting financial expectations. The company revised its full-year net sales forecast to a range of DKK 9.1 billion to DKK 9.5 billion, down from the previous range. The EBITDA margin forecast was adjusted to 18% to 22%, and free cash flow expectations were narrowed to DKK 0.8 billion to DKK 1 billion. Adjusted EPS was revised to DKK 10 to DKK 13 per share. These changes underscore the anticipated challenges in consumer behavior and the need for pricing flexibility.

In summary, the earnings call from Scandinavian Tobacco Group A/S highlighted a blend of achievements and challenges. While the company made strides in areas like retail growth and brand expansion, it also faced headwinds from external economic factors and market dynamics. The updated guidance reflects a cautious approach to navigating these uncertainties, with a focus on maintaining market share and financial stability.