Scandinavian Tobacco Group (STG) Q3 2024 earnings summary

Executive summary

• Q3 2024 net sales rose 7.1% year-over-year to DKK 2,431 million, mainly due to the Mac Baren acquisition, while organic net sales were nearly flat at -0.1% due to discontinued US third-party nicotine pouch distribution.

• EBITDA margin before special items declined to 23.4%, reflecting investments in Next Generation Products and the lower profitability of Mac Baren.

• Free cash flow before acquisitions was DKK 275 million in Q3 and DKK 327 million for the first nine months, down from the prior year.

• Mac Baren integration completed, with expected annual synergies of DKK 150 million by 2027 and special costs of DKK 150 million.

• Discontinuation of third-party NGP product distribution in the US and US handmade cigar market weakness impacted growth.

Financial highlights

• Q3 2024 reported net sales: DKK 2,431 million, up 7.1% year-over-year; organic growth nearly flat.

• EBITDA before special items was DKK 568 million (down from DKK 602 million); adjusted EPS stable at DKK 4.1.

• Free cash flow before acquisitions was DKK 275 million (Q3), DKK 327 million (9M), both down from prior year.

• Gross margin before special items was 46.3% (down from 48.2%); ROIC dropped to 9.8% from 12.9%.

• Special costs of DKK 49 million in Q3, mainly for ERP and organizational changes.

Outlook and guidance

• Full-year 2024 net sales expected at DKK 9.1 billion; EBITDA margin before special items forecast at 22%-23%.

• Free cash flow before acquisitions forecasted at DKK 0.8-0.9 billion; adjusted EPS expected at DKK 12.5.

• Guidance updated to include Mac Baren's impact and likely at lower end due to US market weakness and discontinued NGP distribution.

• Q4 2024 expected to see slightly declining organic net sales growth and unchanged EBITDA margin versus Q4 2023.

• Growth Enablers expected to account for about 10% of 2024 net sales.