Scandinavian Tobacco Group A/S ((DK:STG)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Scandinavian Tobacco Group A/S’s recent earnings call presented a mixed sentiment, balancing successful growth in certain segments with notable challenges. The company highlighted achievements in integrating Mac Baren and expanding nicotine pouches and retail stores. However, these positives were tempered by declines in organic sales growth, reduced EBITDA margins, and ongoing difficulties in the U.S. and international Handmade Cigars markets. The financial outlook remains cautious, with a focus on recovering margins and stabilizing market shares.
Mac Baren Integration Progress
The integration of Mac Baren into Scandinavian Tobacco Group is on track, with significant strides made in consolidating distribution within the U.S. and streamlining online sales channels. This strategic move is anticipated to generate DKK 150 million in synergies by 2027, marking a pivotal step in the company’s growth strategy.
Growth in Retail Stores and Nicotine Pouches
Retail stores in the U.S. and the nicotine pouch brand XQS have shown impressive performance, achieving double-digit sales growth. This segment contributed to 10% of the group’s net sales in the quarter, up from 9% for the entire year of 2024, indicating strong consumer demand and effective market penetration.
Smoking Tobacco Performance
The smoking tobacco segment delivered robust results, with a 10% organic growth driven by fine-cut tobacco. When factoring in the impact from Mac Baren and favorable exchange rate developments, growth surged to 42%, showcasing the segment’s resilience and potential.
Organic Sales Decline
Despite some positive trends, the company faced a 4% decline in organic net sales for the quarter. This was significantly affected by the discontinued distribution of ZYN, which alone negatively impacted organic growth by 3%.
EBITDA Margin Decrease
The EBITDA margin saw a decrease to 21.1% from 24.5% in the same quarter of 2024. This decline was attributed to changes in product and market mix, alongside continued investments aimed at maintaining market share.
Challenges in U.S. Handmade Cigars Market
The U.S. market for Handmade Cigars continues to face contraction, influenced by economic uncertainty and rising product prices. While there was a 1% organic net sales growth in Q2, the first six months showed a 4% decline, reflecting the market’s volatility.
International Market Decline for Handmade Cigars
International sales for Handmade Cigars have declined for the second consecutive quarter, primarily due to reduced shipments to Asian markets. This trend highlights the challenges in maintaining international market presence amidst fluctuating demand.
Dispute with Belgian Authorities
A legal dispute with Belgian excise authorities over waste process supervision was mentioned, with a potential liability of EUR 7 million to EUR 9 million. No provisions have been made yet, indicating ongoing negotiations and uncertainty.
Forward-Looking Guidance
Looking ahead, Scandinavian Tobacco Group remains cautiously optimistic. Despite a 4% decline in organic net sales and a decrease in EBITDA margin to 21.1%, the company expects to achieve positive organic growth in the second half of the year. This optimism is fueled by new store openings and efforts to stabilize market shares. The guidance for 2025 projects net sales between DKK 9.1 billion and DKK 9.5 billion, with an EBITDA margin ranging from 18% to 22%.
In conclusion, Scandinavian Tobacco Group’s earnings call reflected a cautious yet hopeful outlook. While facing challenges in sales growth and market conditions, the company is making strategic moves to integrate acquisitions and expand profitable segments. The focus remains on recovering margins and achieving positive growth in the coming quarters.