Swedish Match steps up ZYN nicotine pouch marketing after Q1 profit beat

STOCKHOLM (Reuters) -Swedish Match on Friday posted higher first-quarter profits than expected and said it was stepping up marketing of its fast-growing tobacco-free product ZYN to take on aggressive competition in the United States.

The tobacco group’s biggest businesses are its moist snuff “snus” in Scandinavia and cigars in the United States, but the nicotine product ZYN - which comes in a pouch and, like snus is put under the upper lip - is growing fast.

Swedish Match’s shares were up 2% in mid-morning trade, taking its year-to-date rise to 10%. It outperformed the broader market, which was flat.

Operating profit jumped 47% from a year earlier to 2.35 billion crowns ($280 million) on sales growth of 11%. Analysts polled by Refinitiv had on average forecast a 1.74 billion crown profit.

The higher sales, a larger share of higher-margin products, and a one-off settlement income of 300 million crowns related to arbitration over nicotine pouches, boosted profit.

“We remain encouraged by the strong market growth for the nicotine pouch category as consumers continue to seek satisfying alternatives to cigarettes and other traditional tobacco products,” CEO Lars Dahlgren said.

Swedish Match said all product segments reported strong earnings growth, especially its Smokefree unit, whose sales grew 24% in local currencies, driven by ZYN.

However, it said, the product lost market share in the United States, where it was launched in 2014, after “aggressive distribution build and heavy price promotions by competition”.

In response, it said it would increase investments in marketing and distribution across all markets.

The rival to British American Tobacco and Altria said it expected to stay resilient to negative effects from the pandemic. However, at least for the first half of 2021, a negative currency translation effect was likely to hit sales and earnings.

It said investments to expand ZYN production capacity would result in higher capital expenditure this year than last.

($1 = 8.3814 Swedish crowns)

Reporting by Anna Ringstrom; editing by Niklas Pollard and Barbara Lewis