British American Tobacco (BAT) shares edged lower in Thursday's session, closing down 0.5% at 4,404 pence, as the company's latest earnings report highlighted a strategic push toward artificial intelligence that may lead to workforce reductions. The tobacco giant reported full-year revenue of £25.61 billion for 2025, a 1% decline on a reported basis, though it noted a 2.1% increase at constant currency rates. Adjusted operating profit rose 2.3% to £11.28 billion, with adjusted diluted earnings per share climbing 3.4% to 340.5 pence.
AI-Driven Productivity and Job Cuts
Interim CFO Javed Iqbal indicated that the company's AI-led productivity initiative "will have an impact on the size of the organisation," though specific figures on potential job losses were not disclosed, with consultations ongoing. This announcement has shifted investor focus toward cost-cutting measures and their implications for BAT's operational efficiency amid a challenging market environment.
Dividend Hike and Share Buyback Plan
In a move to reassure shareholders, BAT raised its dividend by 2% to 245.04 pence per share and unveiled a £1.3 billion share repurchase program scheduled for 2026. CEO Tadeu Marroco expressed satisfaction with the company's "accelerating momentum through 2025," while also guiding mid-term growth targets toward the lower end for 2026.
The company's recent share buybacks, including the purchase of 129,826 shares on February 11 at prices between 4,390 and 4,450 pence each—which are set to be cancelled—have provided some support to the stock. However, investors remain cautious, seeking clearer evidence that BAT's newer product categories, such as vaping and modern oral nicotine, can drive growth without heavy discounting.
Regulatory Risks and Market Sentiment
A significant overhang for BAT is the regulatory landscape, particularly in the United States. The company warned that potential U.S. action against illicit disposable vapes, including a possible import ban on unauthorized products, could reduce the unregulated market by up to one-third. BAT estimates that approximately 70% of U.S. e-cigarette sales currently come from unregulated devices. Marroco downplayed the immediate impact, suggesting any material effect would likely only occur after existing supply-chain inventories are depleted.
Analyst opinions are divided following the results. Jefferies maintained a buy rating with a 5,200 pence price target, while RBC kept its sell rating with a 3,600 pence target. JP Morgan stayed neutral, setting its target at 4,150 pence. This split reflects broader uncertainty about BAT's ability to navigate the transition away from traditional cigarettes while managing regulatory headwinds and delivering shareholder returns.
Looking Ahead
As trading resumes in London, market participants will be watching for further details on the scope of job cuts and the timing of the buyback. Attention is also fixed on the upcoming U.S. International Trade Commission ruling expected in March, followed by a 60-day presidential review period—a sequence BAT has identified as a critical near-term milestone. Prolonged consultations on workforce reductions or a more aggressive regulatory crackdown on illicit vapes could quickly dampen sentiment, especially with growth projections already positioned at the lower end for 2026.
BAT's performance underscores the tightrope walk facing traditional tobacco firms: balancing investment in next-generation products, maintaining profitability in legacy segments, and returning capital to shareholders, all while contending with evolving regulations and technological disruption.
