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SWEDISH MATCH REBOUNDS IN 2nd QUARTER |
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Los Angeles, July 23 – “In local currencies, sales in the second quarter increased by 16 percent compared to the same period of the previous year, while operating profit increased by 4 percent.”
In a nutshell, that’s the story of Swedish Match’s cigar business from March through June of this year: successful, but still not where the company wants to be.
Comments in the second quarter financial statements released last week included another acknowledgment of the importance to Swedish Match’s U.S. cigar business of the recent acquisition of retailer Cigars International:
“During the second quarter, U.S. premium cigar volumes started to return to more normal levels, but were still below the level of the previous year (excluding acquisitions). Sales in local currencies (excluding acquisitions) were down about 10 percent in part due to lower shipments, and in part due to mix shifts toward smaller and less expensive cigars. In the U.S., Cigars International, acquired in September 2007, has shown a strong performance.” Strong is an understatement; Swedish Match’s U.S. premium sales were up 43 percent over 2007!
Swedish Match chief executive Lars Dahlgren told Reuters that the U.S. cigar situation was “nothing drastic; but what we hear, feel and see indicate that the premium market in the U.S. this year is unusually weak.
“People consumed slightly smaller and cheaper cigars. Maybe that’s an indication that people give things an extra thought under these economic conditions.”
The financial tables showed that Swedish Match’s overall cigar sales – including Cigars International – improved to $151.6 million U.S. (converted from Swedish kronor), its second-best sales quarter in the past two years. Operating profits in the cigar sector suffered because of the weak dollar, but still totaled a respectable $30.7 million or a 20.3% profit margin.
For the first six months of 2008, Swedish Match’s cigar sales were $278.0 million, up five percent against 2007 figures, clearly due to added sales from Cigars International. For the same period, operating profits in cigars were down 17 percent from 2007, to $49.4 million (17.8 percent margin, down from 22.6 percent last year).
While the U.S. sales figures have been buoyed by Cigars International, sales in Europe have been bolstered by the 2007 acquisition of Bogaert Cigars. Total sales increased, but operating profits were flat and the report noted that “Excluding the impact of the Bogaert acquisition, sales and profits were lower due to difficult market conditions in some countries. In the Netherlands, a smoking ban in all bars and restaurants was introduced effective July 1 which has impacted shipments during the period.”
In the U.S. machine-made sector, Swedish Match sees its share of the U.S. market at 6.1 percent, fourth in the market behind market leaders Swisher International (35.9%), Imperial Tobacco (i.e., Altadis, 22.2%) and Philip Morris’s John Middleton at 14.8 percent. In terms of revenue, Swedish is again fourth, but at 11.2 percent, behind Swisher (31.8%), Imperial (29.6%) and Philip Morris/John Middleton (21.3%).
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