FDA Denies Swedish Match's Request to Remove Warning Messages From Tobacco Products

- By Alberto Abaterusso

The Food and Drug Administration announced on Wednesday that it denied Swedish Match North America's (SWMA.ST) request to remove required warning labels from its snus smokeless tobacco products. The warnings are in regard to the risks associated with such products, gum disease, mouth cancer and tooth loss.

The FDA made this decision after previously considering other requests the Swedish company made in regard to additional required warnings.

The 2009 Family Smoking Prevention and Tobacco Control Act grants tobacco producers the right to apply for an assessment of its modified risk tobacco products (MRTP).

According to the FDA, "an MRTP is a tobacco product that may be sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products."

The FDA denied the request related to the risks of gum disease, mouth disease and tooth loss because scientific evidence supports these are consequences of using these products.

In regard to its other request, the FDA has deferred final action, giving the company an opportunity to modify its applications. They have two years to do so. The company also requested a revision of a current warning to say snus smokeless tobacco products have "substantially lower risks to health than cigarettes," according the FDA's news release.

Swedish Match North America Inc. is a moist smokeless tobacco (snus, moist snuff and chewing tobacco) and cigar producer headquartered in Stockholm. The company also produces matches and lighters.

Swedish Match's production units are situated in six countries, however, the majority of sales is reported in the Scandinavian and U.S. businesses. Over 33% of the company's total sales and over 50% of the company's profit generated by the core business derives from the sale of snus and moist snuff products.

As of the third quarter, the company had 5.2 billion Swedish krona (approximately $0.56 billion), a 246.6% increase from Dec. 31, 2015, due to the completion of the second part of its divestiture of Scandinavian Tobacco Group (STG) in September and the issuance of a corporate loan. The company also has a line of credit of 1.5 billion krona as of the third quarter.

The net debt amounted to 6.9 billion Swedish krona, a 12.6% decrease from Dec. 31, 2015, from the proceeds of the divestiture of STG, the company with which Swedish Match created a group that focuses on cigars in 2010.

Swedish Match distributed cash in the form of dividends to its shareholders for a total of 3.764 billion Swedish krona in the first nine months of 2016.

Besides an ordinary dividend of 1.506 billion Swedish krona, the company also paid a special dividend of 2.258 billion krona due to the sale of the second tranche of STG's shares. According to the current market prices, the dividend yield is 3.09%.

Swedish Match AB is trading at 298.60 Swedish krona, up 2.10 krona (or 0.71%) from the previous close. The Swedish tobacco company is trading at 14.43 times its Ebitda.

The company has a market capitalization of 55.4 billion Swedish krona and has approximately 185.53 million shares outstanding, of which almost all can be traded on the Stockholm Stock Exchange.

The analysts average price target is 225.65 Swedish krona. The price ranges between a low of 190.00 Swedish krona and a high of 270.00 krona.

Among its peers are: Reynolds American Inc. (RAI), Altria Group Inc. (MO), Vector Group Ltd. (VGR), British American Tobacco PLC (BTI), Lorillard LLC (LO) and Philip Morris International Inc. (PM).

Gardner, Russo & Gardner holds 300,938 shares of Swedish Match AB, representing 0.16% of the company's total shares outstanding, for a total value of 94,735,282 Swedish krona.

Disclosure: I have no positions in any stock mentioned in this article.

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