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Swedish Match Surges on Snus and Snuff Amid U.S. Investments

Swedish Match AB, the maker of Red Man chewing tobacco, rose the most in more than two years in Stockholm, boosted by the first-quarter performance of its snus and snuff business and accelerated U.S. expansion.

The shares climbed as much as 7.3 percent to 223 kronor, the steepest intraday advance since Feb. 23, 2011.

Underlying earnings in the snus and snuff business beat estimates despite “significant” investment in the U.S., according to Eivind Sars Veddeng, an analyst at DNB Bank ASA.

The investment contributed to a 6 percent drop in the division’s first-quarter operating profit to 534 million kronor ($82 million). Swedish Match reiterated that snus and snuff earnings will probably decline this year, also hurt by a pricing battle in the Stockholm-based company’s home market. Snus is a type of moist tobacco placed under the upper lip, sometimes in pouches.

The maker of Timberwolf snuff said it expects to have products in 17,000 to 20,000 U.S. stores by the end of the year, raising the target from 15,000 to 20,000. It’s currently in about 13,000 outlets. The U.S. is the largest market for moist snuff and represents a strong potential for the Swedish snus variety, according to Swedish Match. Since 2007 the company has sold Swedish snus in the U.S. where it also sees growth for mass-market cigars.

Positive Sign

The increased U.S. goal is a positive sign, Veddeng said. “This means it is going well there,” he said.

The stock traded 6.4 percent higher at 221.10 kronor as of 16:06 p.m., erasing its decline in the year to date.

First-quarter net income rose 11 percent to 740 million kronor, Swedish Match said, boosted by a gain on the sale of its former head office. A slow start to the year for some products and “significant” spending on growth initiatives for pouches and value packs affected operating earnings, which fell 8 percent to 832 million kronor excluding one-time items.

First-quarter sales increased to 2.98 billion kronor from 2.92 billion kronor a year earlier, beating the 2.93 billion-kroner average estimate of 13 analysts compiled by Bloomberg.

“We are in a very intense period right now,” Chief Executive Officer Lars Dahlgren said by phone, referring to competition and the introduction of new products.

Tough domestic competition forced Swedish Match to roll back a price hike on its budget snus Kaliber earlier this year and has eroded its share of the low-end market segment. The company will probably push through a hike for its premium products after the summer or towards year-end, Dahlgren said during a conference call today.

“The premium segment should be able to handle some price increases,” he said.

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