UPDATE 2-Swedish Match posts higher Q2 profit, shares rise

* Pretax profit rose 38 percent to 791 million crowns

* Expects H2 sales, operating profit to beat 2008

* Key snuff margin drops, but cigar margin shines

* CEO says Q2 cigar margin not sustainable

* Shares up 3.0 percent

(Adds CEO, analysts, background)

By Katarina Gustafsson and Veronica Ek

STOCKHOLM, July 17 (Reuters) - Cigar and snuff maker Swedish Match AB (SWMA.ST) posted a 38 percent rise in second-quarter earnings and predicted higher second-half sales and operating profit, lifting it shares on Friday.

"It is a surprisingly strong report. The cigar margin is incredibly strong," said Rolf Karp, an analyst at Ohman Fondkommission.

Pretax profit rose to 791 million Swedish crowns ($101 million), adjusted for the divestment of a South African pipe tobacco and snuff operation.

The mean forecast for pretax profit in a Reuters poll which included the divested business, was for a 705 million profit. The company said the operations it sold made a net profit of 41 million crowns in the period. It did not give a pretax figure.

Swedish Match shares were up 3.8 percent at 0830 GMT, outperforming a 1.0 percent gain in the Stockholm bourse's blue-chip index .OMXS30.

Chief executive Lars Dahlgren told Reuters in an interview in June the cigar business might be more profitable in the second quarter than analysts expected, but there was a risk the snuff margin would come in lower than in 2008.

The secon-quarter operating margin for the cigar division -- which accounted for 29 percent of sales last year -- rose to 24.9 percent from 20.2 percent, above a forecast 18.9 percent.

"It is a strong set of numbers, cigars particularly are ahead of what I was expecting," said an analyst who asked not to be identified.

CIGAR MARGIN NOT SUSTAINABLE

The company saw a sharp surge in cigar sales in the first quarter ahead of a new federal tax in the U.S. market introduced on April 1, and sales grew further in the second quarter.

Dahlgren told Reuters he expected the cigar business to continue to perform well, but its margin would fall back to lower levels in coming quarters.

"We see a strong second half of the year for the cigars, but maybe not quite as strong as for the first, so we're going to see a normalisation of the cigar margin," he said.

The margin for the key product wet snuff -- a tobacco product sold mainly in the United States and Scandinavia, but banned elsewhere in the European Union -- dipped to 42.6 percent from a year-ago 43.6, just below an expected 42.8 percent.

"That the snuff margin came in some percentage points below expectations isn't worth squabbling over," Ohman's Karp said.

Dahlgren told Reuters last year's snuff margin level was a reasonable indication for the full-year 2009.

"We're back to square one now and to what we said in the beginning of the year -- that the snuff margin for the full year approaches the 44 percent level from last year," he said.

The company said wet snuff sales and volumes grew in all Scandinavian markets during the quarter, and its market share had continued to grow in the United States. (Editing by David Holmes and Dan Lalor)