Swedish Match is reporting a positive first quarter, mostly led by a growing smokeless category and products like ZYN. In a recent recap of the first three months of 2020, Swedish Match reported that sales from product segments including smokeless, cigars and lights increased by 30 percent in the first quarter. Operating profit from product segments increased by 30 percent for the first quarter, and earnings per share increased by 30 percent in the first quarter. While net effect on revenue and results from the COVID-19 impacts were so far positive in the first quarter of the year, Swedish Match is expecting to see some negative impact beginning to show in the second quarter.
ZYN, a nicotine pouch product, was credited as having provided the company with much of its success in the first three months of 2020. The company reports that ZYN is now available in approximately 80,000 stores in the U.S. and average sales per store continues to increase over time.
“Like many businesses, we are experiencing commercial shifts–both positive and negative–which are likely to influence reported results for the coming quarters. However, it is important to note that underlying consumer demand for smoke free products remains strong, and distribution and most retail channels that provide consumers access to our products have, to this points, been largely unaffected by the COVID-19 pandemic,” commented Lars Dahlgren, CEO of Swedish Match.
Dahlgren went on to talk about the impacts of the COVID-19 pandemic, both positive and negative. In Scandinavia, the pandemic caused restrictions that prevented shipments of products into the country. In contrast, the U.S. saw an increase in demand for product as the pandemic situation took hold of the country. The company does not anticipate this increase in demand for product in the U.S. to sustain at its current levels, nor does it anticipate an issue with shipping products into countries that have closed down its borders due to the coronavirus. The company’s facilities are operating at near normal capacity according to the company, though some of its factories experienced temporary closures due to COVID-19. The company is also not having any issues with sourcing materials or with obtaining inputs needed for production.
In terms of each product category, Swedish Match saw its smoke free products experience higher sales and operating profit driven by a strong performance in the U.S. ZYN experienced sequential growth, and there was a solid performance in the U.S. for Swedish Match’s moist snuff and chewing tobacco products as swell. Overall, Swedish Match’s smoke free products increased by 31 percent in the first quarter, benefiting from a growing distribution of its ZYN product. Specifically in the U.S., smoke free products grew by 73 percent and operating profit grew by 143 percent. While nicotine pouches and moist snuff are seeing a sales boom, chewing tobacco sales were said to have only grown modestly.
“ZYN sales continued to demonstrate rapid volume growth, with shipment volumes reaching 24.9 million cans during the quarter,” Swedish Match reported. “The volume growth is attributable to both increased store velocities (cans/store/week) and a sequential increase in store count of 13,000 stores (ZYN now in approximately 80,000 stores). Swedish Match estimates that the incremental ZYN shipments due to COVID-19 hoarding and pipeline volumes to new distribution approximated 3 million cans in the quarter. As ZYN participates in a rapidly expanding market and is no longer the only participant in many states, rapid volume growth may be achieved concurrent with market share declines. Based on the measure of distributor shipments to retail, ZYN remains the largest player in the market, with more than a 70 percent share within the nicotine pouch category.”
Swedish Match also saw an increase in its cigar shipment volumes, up 7 percent in the first quarter with gains seen in the natural leaf varieties. Even though the company’s Dominican Republic factory temporarily closed due to COVID-19, the company is not anticipating any material impact on its ability to meet the anticipated demand for its cigar products. One product category that did experience a slump in the first quarter was Swedish Match’s lights products, which declined by 2 percent. Reduced raw materials pricing and cost controls did lead to a growth in operating profits despite the slower sales.
Swedish Match’s full year 2020 outlook remains unchanged with the company anticipating continued growth in global markets for smoke free nicotine products like ZYN. Swedish Match expects to increase investments in marketing, distribution and sales efforts in both existing and new markets in order to help spark further growth. The company does expect COVID-19 to have a negative impact on its second quarter financial results, including a noticeable shift in consumer demand and additional manufacturing and operating expenses the company will incur in order to move beyond the impact of COVID-19.