British American Tobacco (BAT) raised its full-year earnings forecast on Thursday, citing strong demand for its Velo nicotine pouches and a solid performance in the United States. But the market reaction was muted: shares fell as much as 3% in early trading, suggesting investors wanted more.
What happened
BAT reported adjusted earnings per share (EPS) of 164 pence for the six months to June 30th, up 7.9% from a year earlier. That beat the company-compiled consensus estimate of 158.5 pence. The better-than-expected result prompted management to lift its full-year adjusted EPS growth forecast to the middle of its 5%-8% range, rather than the low end it had previously flagged.
The improvement was driven largely by what BAT calls its “new categories” business — a division that includes vaping products, heated tobacco, and modern oral products like Velo nicotine pouches. Revenue from that segment grew, helping offset ongoing declines in traditional cigarette volumes.
However, BAT kept its overall revenue and profit guidance at the low end of its previous range, which may explain why the stock didn't get a bigger boost. Investors often look for upgrades across the board, not just on one metric.
Why it matters for investors
For everyday investors, the key takeaway is that BAT is navigating a long-term shift away from combustible cigarettes toward what the industry calls “reduced-risk products.” Nicotine pouches like Velo are a fast-growing part of that pivot. They are smokeless, tobacco-free pouches that deliver nicotine, and they have been gaining traction, especially among younger consumers and in markets where vaping faces tighter regulation.
The US market remains critical for BAT. The company's American business performed well in the first half, helped by pricing power and cost controls. But the broader backdrop is challenging: smoking rates continue to decline, and regulators are cracking down on flavored vaping products. BAT's ability to grow its new categories while managing the decline of its traditional cigarette business will be a key factor for the stock's long-term performance.
BAT's update comes during a busy earnings season. Other large companies have also reported mixed results, with some raising forecasts while others disappointed. For context, Shell beat Q2 profit estimates on strong trading, while Equinix shares dipped on a weak Q3 outlook despite raising long-term targets — a pattern similar to BAT's.
What to watch next
Investors will be watching for further details on BAT's new categories growth trajectory, particularly in the US and Europe. The company faces competition from Altria and Philip Morris International, both of which are also investing heavily in nicotine pouches and heated tobacco.
Another factor is regulation. The US Food and Drug Administration (FDA) has been tightening rules on flavored vaping products, which could affect BAT's Vuse brand. However, nicotine pouches have so far faced less scrutiny, giving BAT some breathing room.
BAT's dividend yield — currently around 8% — remains a draw for income-focused investors. But the stock has been under pressure this year, down roughly 10% year-to-date, as concerns about regulation and the pace of the transition away from cigarettes weigh on sentiment.
For now, the raised EPS forecast is a positive sign, but the market's tepid reaction suggests investors want to see more consistent revenue and profit growth before they get more excited.
