UPDATE 2-U.S. cigar sales spike boosts Swedish Match Q4

Wed Feb 23, 2011 6:08am EST

* Comparable EBIT 836 mln SEK

* Sees U.S. cheap cigars profits up in 2011

* Sees synergies from STG acquisition in coming quarters

* Shares up 7 pct

(Adds CEO, analyst, updates shares)

By Anna Ringstrom and Mattias Lovkvist

STOCKHOLM, Feb 23 (Reuters) - Snuff and cigar maker Swedish Match (SWMA.ST) posted higher fourth-quarter profits helped by a spike in sales of cheap cigars in the United States, and saw rising profits for that business this year, sending shares up.

Analysts said results were overall strong, and the firm's shares rose 6.9 percent to 199.70 crowns at 1012 GMT, outperforming the blue-chip Stockholm index .OMXS30.

UBS analyst David Hallden said core profit, sales, positive one-offs as well as dividend were slightly bigger than expected.

"I would have liked to see a stronger snuff margin but such a broad strength overall outweighs that. Shares have come down a bit ahead of the report but this is better than feared, so it's a bit of a relief (rally)," he said.

Swedish Match, whose main markets are Sweden, Norway and the United States, forecast increased sales and profits this year for its U.S. mass market cigar business, which has grown rapidly in recent quarters. A 49 percent spike in sales of the product was a key positive in the fourth quarter, analysts said.

The firm, which has BAT (BATS.L), Altria (MO.N) and Reynolds American (RAI.N) as key rivals, also said it expected the main markets for its key product snuff, called snus in Scandinavia, would continue to grow in 2011.

"Snuff looks good, which is important. The U.S. mass market cigars stand out with better volumes than expected," said ABG Sundal Collier analyst Andreas Lundberg.

The profit margin for snus and snuff, which account for more than half of group profit, was 48.1 percent, just missing a mean forecast for 49 percent in a Reuters poll.[ID:nLDE71G1RD]

Chief Executive Lars Dahlgren however told Reuters snuff margins would probably be lower in 2011 than in 2010, mainly due to marketing costs.

Quarterly comparable operating profit the firm, which has benefited from demand for smokeless products as cigarette sales have fallen on health fears, was 836 million crowns ($130 million) against a year-earlier 740 million.

RESHUFFLE SYNERGIES IN SIGHT

In October, Swedish Match bought 49 percent of Scandinavian Tobacco Group (STG) and transferred all its cigar businesses, except U.S. mass market cigars, to the new entity. [ID:nWEB2060]

The result and year-ago comparison exclude businesses transferred under the deal, Swedish Match's share of losses at STG, and one-off items.

Swedish Match's share of STG's net loss, which includes restructuring and transaction costs, was 60 million crowns.

"We are pleased with the pace of activity as Scandinavian Tobacco Group works through the integration process. We are now expecting to see some of the synergy benefits coming through over the coming quarters," Chief Executive Lars Dahlgren said.

Swedish Match booked a capital gain of 585 million crowns from the transfer of businesses to STG.

The firm proposed a dividend for 2010 of 5.50 crowns per share, against a consensus forecast for 5.33 crowns. ($1=6.418 Swedish Crown) (Editing by Jon Loades-Carter)

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