STG's Focus2030: Stabilizing the Core, Recharging the Portfolio

First-quarter results show early signs of market-share stabilization, but XQS timing clouds the nicotine pouch story.

STG.CO · Earnings Call · 2026-05-21

A New Strategy, A Steady Hand

Scandinavian Tobacco Group's first quarter of 2026 marked the opening chapter of Focus2030, and management was quick to frame it as a measured start rather than a dramatic pivot. CEO Niels Frederiksen struck a confident but cautious tone: “We have laid the first bricks to build a solid foundation for protecting our market positions within both machine-rolled cigars and handmade cigars.” — Niels Frederiksen, Chief Executive Officer (CEO) · 2026-05-21 The headline numbers were muted—organic net sales down 0.6% on a constant-currency basis, with a 5.2% currency drag from the U.S. dollar—but the narrative was about stabilization and execution, not growth.

Machine-Rolled Cigars: Turning the Corner?

For the past several quarters, the company's European machine-rolled segment has been the source of concern, with persistent market-share losses exacerbated by SAP implementation issues and inventory availability. In Q1, however, the tone shifted. “During the quarter, our market share positions have stabilized within machine-rolled cigars in Europe,” — Niels Frederiksen, Chief Executive Officer (CEO) · 2026-05-21 Frederiksen noted, adding that preliminary data shows volume share in seven key markets at 27.9% for the quarter, versus 27% on a trailing twelve-month basis. This is a meaningful early signal, although management was careful to label it a “good first step” and not a trend. The CFO, Marianne Bock, linked the improvement directly to the resolution of last year's internal disruption: “It is primarily driven by the issues that we had in Q1 last year, and now we are back to a level of margins that is more normalized.” The gross margin in Europe Branded jumped from 41% to 49% year-over-year, a recovery that highlights how much of the prior year's weakness was company-specific rather than industry-wide.

Power Brands and Handmade: A Sharper Focus

The power brand strategy is the engine behind Focus2030, and management used the quarter to showcase tangible initiatives—most notably the relaunch of Mehari for its 50th anniversary and a new Cohiba limited edition produced at El Titan de Bronze in Miami. Frederiksen emphasized that the company is “putting all our efforts behind sustaining this for the coming quarters” and that three of four power brands gained share in the quarter. Handmade cigars grew 8% organically, driven by U.S. brands and retail stores, though online competition continues to pressure margins. The international handmade business is also expanding, as Frederiksen noted that “we still aim to grow our international business in handmade cigars” despite an improving Cuban supply—the high prices of Cuban cigars are sustaining the shift to non-Cuban alternatives.

The XQS Conundrum

The most intriguing data point came from the nicotine pouch business. Reported organic net sales fell 23% in the quarter, but in-market volumes grew strongly. Frederiksen explained:

When we look at the first quarter of 2026, and take the three important markets for us, Sweden, Denmark and the U.K., we see the category growing 21%, and we see our volumes growing by 38%.
Niels Frederiksen, Chief Executive Officer (CEO) · 2026-05-21

The discrepancy is due to timing of deliveries and a distributor destocking, as CFO Bock added. Still, the underlying momentum for the XQS brand appears robust—the brand share in Sweden rose from 10.7% to 13.6% year-over-year—and management is deliberately migrating volume from the legacy ACE and GRITT brands to XQS. This is a classic story of portfolio rationalization masking underlying health, and it will be a key metric to watch in coming quarters.

Financials and Guidance: Holding the Line

EBITDA before special items was flat year-over-year at DKK 1.9 billion, and the margin improved to 17.2% from 16.1%. Free cash flow was DKK 158 million, in line with last year, and working capital contributed positively for the first time in a first quarter since the IPO. Leverage remains at 3x, with management reiterating its path toward the 2.5x target by year-end. The full-year guidance is unchanged: net sales growth of -2% to +2% at constant currencies, EBIT margin before special items of 13%-14.5%, and free cash flow of DKK 950 million-1.2 billion. As Frederiksen put it, “We appreciate that uncertainties are elevated and geopolitical risks remain high” — Niels Frederiksen, Chief Executive Officer (CEO) · 2026-05-21—a nod to the Middle East conflict and U.S. tariff uncertainty.

The market has clearly been watching STG as it navigates a declining combustible category. The prior quarter's call (March 2026) was dominated by concerns over margin decline and the need for aggressive cost cuts. CFO Bock then acknowledged “we are anticipating a slight decline in margins in '26” — Marianne Bock, CFO or Senior Finance Executive · 2026-03-05 but also highlighted a DKK 200 million cost program. Now, the company is showing that it can defend its core and even stabilize share, while investing in the future via power brands and XQS. The question is whether the stabilization is durable or just a bounce off a low base—management itself cautions that one quarter does not change a trend. Still, for a company that has been losing ground, this is a constructive start, and the tape seems to agree (though no price data is available for STG.CO in this dataset, the broader sector has seen interest in nicotine adjacent themes).