British American Tobacco: 1H26 Results Preview (due on Thu, 30 July)

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British American Tobacco: 1H26 Results Preview (due on Thu, 30 July)

British American Tobacco UBS Research

Market data / commentary

After a -9% decline in US cigarette volumes in 2024, and -8% in 2025, industry volume

declines moderated to c-5% YTD, according to MSAi data. We believe this reflects: (i) a

reducing impact from vapour category substitution; (ii) lower retail price/mix, which is up

+4.5% YTD, compared to +5.6% in the same period last year, driven by the growth of

the deep discount segment; and (iii) a soft comparator. Whilst the improvement in

industry volumes is supported by rising penetration of deep discount brands, there has

also been a slight recovery in premium cigarette volumes that are down -10.9% YTD,

versus -12.2% last year, according to NielsenIQ. We anticipate an industry volume

decline of -6.2% in FY26, assuming retail price increases step-up (including Altria

lapping its price investment), and the comparatives get more challenging.

Figure 1: US industry cigarette volumes change Figure 2: US tobacco volume change composition forecast

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Source: MSAi, UBS Source: UBS Tobacco Transformation model

Altria began investing in price last year by introducing a deep discount brand, Basic, at a

c$5.0 per pack price point (broadly in line with Japan Tobacco's average, and lower than

BAT's discount offering at c$6.5). We believe the intention was to compete directly with

deep discount brands that had reached c20% of cigarette volumes (compared to less

than 8% pre-pandemic), particularly as Japan Tobacco strengthened its position in the

market post the acquisition of Vector in 2024. Whilst Altria's investment has negatively