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British American Tobacco expects to return to profit growth in the US for the first time in three years by mid-2025, saying demand for nicotine pouches had boosted sales.
The maker of Lucky Strike and Dunhill cigarettes increased its annual revenue growth target to between 1 and 2 per cent, from a previous 1 per cent target, forecasting strong sales in its “modern oral” category, which includes the pouches.
Chief executive Tadeu Marroco said that the company had had “a very good response” to the pouches, flavoured bags of nicotine that are held behind the lip. “We are seeing it in different geographies in the US and we are seeing different types of consumers getting into it.”
“In the US, I am very pleased that we expect to return to both revenue and profit growth” in the half year and full year, he added.
In full-year results in February, BAT said global revenues from modern oral products had risen more than 200 per cent in the US in 2024 and global revenue from the category hit £790mn. Its total revenues from “new category” cigarette alternatives were £3.4bn that year, against £21bn for “combustible products” such as cigarettes.
BAT has been selling nicotine pouches in the US since 2018, but launched a new stronger product there last year.
Analysts at Citi estimate the gross margins of nicotine pouches is roughly 75 per cent, compared with 60 per cent for cigarettes.
“Historically cigarettes is what people have relied on for their nicotine hit,” said Simon Hales, an analyst at Citi, adding that the pouches were now becoming “the go-to nicotine hit”.
BAT and its rivals are trying to move away from dependence on cigarette sales as consumers switch to alternatives such as vapes and nicotine pouches, or give up smoking all together.
According to the World Health Organization, tobacco use has fallen more than 50 per cent worldwide since 2000.
BAT has been slower to shift its focus, having bought US cigarette maker Reynolds American for $49bn in 2017. This year, it also had to make a £6.2bn provision for a Canadian lawsuit to compensate smokers for health problems.
Philip Morris International, the world’s largest listed cigarette company, last year earned 39 per cent of its revenues from non-tobacco products. For British American Tobacco, the category accounted for only 17.5 per cent of its earnings.
Cigarette makers have also been hit by the rising popularity of unregulated, disposable vapes. While a UK ban on disposable vapes came into force this week, illicit vaping products in the US and Canada are a concern for tobacco companies. BAT expects its vape sales to fall nearly 10 per cent in the first half of the year
“The legal side of vaping is reducing. We don’t have a legal vaping market in the US today . . . we are hoping the new administration could bring some enforcement,” Marroco told analysts on Tuesday.
