(Adds detail, background, shares)
STOCKHOLM, May 4 (Reuters) - Tobacco group Swedish Match beat expectations for first-quarter profit on Friday as profit margins for snus, a wet snuff tobacco, widened, but the profitability of its cigars shrank in the United States.
The company has grown fast in recent years in the U.S. cigar market and hopes for similar success there with snus, which is banned elsewhere in Europe and which faces increased competition in its home market.
Operating profit was 1.05 billion crowns ($119 million), down from 1.24 billion a year earlier. The forecast in Reuters’ poll of analysts had been for 1.03 billion.
Shares in the company were down 3.8 percent by 1018 GMT, having risen by around a quarter in the last quarter.
One analyst who declined to be identified said the drop was due to profit taking following the recent strong share performance.
Swedish Match said cigar volumes increased despite tough competition, but profitability was squeezed by the cost of changes to packaging required by U.S. health authorities from August this year, and by changes to the product mix.
Sales volumes of its natural rolled leaf cigars, a small but fast-growing market segment where the company is focused on growing, were hit by a recent price increase by Swedish Match, CEO Lars Dahlgren told Reuters.
Dahlgren saw a substantial positive effect from the price hike on margins for these cigars from this quarter on, adding that volumes may however suffer further from it.
The margin for the snus and snuff division widened to 45.0 percent from 41.2 percent, against a forecast 43.2 percent.
Swedish Match predicted both the Scandinavian snus market and the U.S. cigar market would remain highly competitive this year.
An adviser to the European Union’s top court said last month the EU ban on snus is valid. Swedish Match had challenged the ban, arguing that new scientific data had shown it to be less harmful than cigarettes. The European Court of Justice will make a final decision this year. ($1 = 8.8080 Swedish crowns) (Reporting by Anna Ringstrom, additional reporting by Esha Vaish, editing by Louise Heavens)