Executive Summary

Q2 2025 delivered an across-the-board beat vs Wall Street: adjusted diluted EPS of $1.44 vs $1.38 consensus, and revenues net of excise taxes of $5.29B vs $5.19B consensus; management raised the lower-end of FY25 EPS guidance to $5.35–$5.45 from $5.30–$5.45, maintaining the range top-end . Estimates from S&P Global; values marked with * are from S&P Global.
Oral tobacco was the bright spot: on! shipment volume grew 26.5% YoY to 52.1M cans; segment adjusted OCI rose 10.9% and margins expanded to 68.7% .
Smokeable products held margins despite double-digit volume declines; adjusted OCI rose 4.2% with adjusted OCI margins up 2.9pp to 64.5%, supported by strong net price realization and targeted discount brand expansion (Basic) .
Management emphasized accelerating enforcement against illicit e-vapor imports and NJOY IP workarounds; tone was confident on the oral portfolio and shareholder returns ($274M repurchases in Q2; $3.5B dividends YTD) .

What Went Well and What Went Wrong

What Went Well
- Oral tobacco momentum: “on! delivered strong performance and was the substantial driver of the segment’s growth” with adjusted OCI +10.9% and margin +3.1pp to 68.7% .
- Margin discipline in smokeable: adjusted OCI +4.2% and adjusted OCI margin +2.9pp to 64.5%, aided by pricing and lower settlement charges .
- Shareholder returns and guidance: raised FY25 EPS guidance lower-end to $5.35–$5.45; Q2 repurchases of 4.7M shares ($274M) and $1.7B dividends paid in Q2 .
What Went Wrong
- Combustible volumes fell: domestic cigarette shipments -10.2% YoY; industry volume -8.5% (adjusted), pressured by illicit flavored disposable e-vapor and consumer income constraints .
- MST brand pressure: Copenhagen/Skoal cans -7.7%/-8.8% YoY and oral segment retail share down to 33.1% (from 37.7%); ON’s pouch share fell within the category (16.7%, -2.3pp YoY) despite total oral category shift to pouches at 52% (+10pp YoY) .
- NJOY disruption and special items: earlier ITC exclusion order drove non-cash goodwill impairment in Q1 and ongoing acquisition-related costs; management working on patent workarounds and supply-chain optionality .

Financial Results

Key Results vs Prior Periods and Estimates

Metric	Q4 2024	Q1 2025	Q2 2025	Q2 2025 Consensus*
Net Revenues ($USD Billions)	$5.97	$5.26	$6.10	—
Revenues net of excise taxes ($USD Billions)	$5.11	$4.52	$5.29	$5.19*
Reported Diluted EPS ($)	$1.79	$0.63	$1.41	—
Adjusted Diluted EPS ($)	$1.29	$1.23	$1.44	$1.38*
Reported Tax Rate (%)	(9.4)%	36.0%	23.7%	—
Adjusted Tax Rate (%)	24.1%	23.5%	23.3%	—

Notes: *Values retrieved from S&P Global.

Q2 2025 vs estimates: Revenue and EPS beat. Revenues net of excise taxes: $5.29B vs $5.19B*; Adjusted EPS: $1.44 vs $1.38* (bold beat) . Values retrieved from S&P Global.

Segment Breakdown (Q2 2025 vs Q2 2024)

Segment (USD Millions)	Q2 2024	Q2 2025	YoY
Smokeable: Net Revenues	$5,495	$5,357	(2.5)%
Smokeable: Revenues net of excise	$4,587	$4,570	(0.4)%
Smokeable: Adjusted OCI	$2,827	$2,947	+4.2%
Smokeable: Adjusted OCI Margin (%)	61.6%	64.5%	+2.9pp
Oral: Net Revenues	$711	$753	+5.9%
Oral: Revenues net of excise	$687	$728	+6.0%
Oral: Adjusted OCI	$451	$500	+10.9%
Oral: Adjusted OCI Margin (%)	65.6%	68.7%	+3.1pp

KPIs

KPI	Q2 2024	Q2 2025
Marlboro Cigarette Shipments (sticks, MM)	16,316	14,458
Total Cigarette Shipments (sticks, MM)	17,898	16,066
Total Cigar Shipments (sticks, MM)	462	479
Marlboro Retail Share (Total Cigarette, %)	41.9%	41.0%
Industry Discount Retail Share (%)	29.3%? —	31.2%
Copenhagen Cans (MM)	103.9	95.9
Skoal Cans (MM)	37.5	34.2
on! Cans (MM)	41.2	52.1
on! Share of Oral Category (%)	8.0%	8.7%
Nicotine Pouch Share of Oral Category (%)	42.0%? —	52.0%
Oral Segment Retail Share (%)	37.7%	33.1%

Notes: Retail share definitions per Circana/MSAi methodology . Where only current-period share is disclosed, YoY change provided in text .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted Diluted EPS	FY 2025	$5.30–$5.45 (2%–5% growth from $5.19 2024 base)	$5.35–$5.45 (3%–5% growth from $5.19)	Raised lower-end
Adjusted Effective Tax Rate	FY 2025	23%–24%	23%–24%	Maintained
Capital Expenditures	FY 2025	$175–$225M	$175–$225M	Maintained
Depreciation & Amortization	FY 2025	≈$290M	≈$290M	Maintained
Share Repurchase Program	Through 2025	$1B authorization; expect completion by 12/31/25	$400M remaining at 6/30/25; expect completion by 12/31/25	Progress update

Management notes tariffs and illicit market enforcement assumptions embedded in guidance; NJOY ACE not expected to return in 2025 under base case .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024 & Q1 2025)	Current Period (Q2 2025)	Trend
Illicit e‑vapor enforcement	Called regulatory structure “broken”; urged FDA authorizations and multi-agency enforcement; noted disposable vapers ~20M end-2024, >60% illicit	Signs of momentum: FDA import policy tightening, CBP rejections, warning letters; wholesalers report supply shortages; still early; disposables ~14.4M, total vapers ~20.5M	Gradual improvement; still significant headwind
NJOY (IP and roadmap)	ITC exclusion order risk flagged; engineers working on patent workarounds; SE exemptions filed for 3 patents; optional non-China manufacturing	Fourth patent workaround at “product lock”; exploring appeal; broader vapor portfolio development continues	Executing workaround; disciplined re‑entry timing
Smokeable pricing and discount strategy	Strong net price realization; Basic/L&M positioning; consumer under inflationary pressure	Expanded Basic into ~30k stores; PM USA total cigarette share +0.2pp seq.; discount segment grew 1.9pp YoY	Targeted discount expansion; preserving Marlboro premium strength
Oral tobacco/on! brand building	Helix profitability in Q4; trade program, packaging, IT’S ON! equity campaign	Activations reached >170k ATCs; ~190M digital impressions; on! volume +26.5%; share of oral category 8.7%	Sustained brand investments; scale benefits
Tariffs & supply chain	Indicated limited impact; NJOY not solely China-sourced	Tariffs contemplated; limited cost impact; materials exposure (foils, tins); focus on consumer impact; supply-chain optionality	Costs manageable; consumer sensitivity monitored
ABI equity earnings	Q4 adj. equity earnings $159M	Q2 adj. equity earnings $130M; lower ownership after partial sale	Lower run-rate vs prior year

Management Commentary

“In oral tobacco, on! delivered strong performance and was the substantial driver of the segment’s growth in the quarter.” — Billy Gifford, CEO .
“We are raising the lower-end of our 2025 full-year guidance and now expect to deliver adjusted diluted EPS in a range of $5.35 to $5.45.” — Billy Gifford, CEO .
“Adjusted diluted earnings per share increased 8.3% to $1.44 in the second quarter… supported by strong net price realization of 10%.” — Sal Mancuso, CFO .
“We see signs that enforcement actions have picked up momentum… tightening import policy and border controls…” — Billy Gifford, CEO .
“Basic's retail share grew 0.4pp sequentially… total PM USA cigarette retail share increased 0.2pp sequentially to 45.2%.” — Sal Mancuso, CFO .

Q&A Highlights

Guidance phasing and consumer environment: Management expects EPS growth to moderate as it laps prior share count/benefits; will monitor inflation and ATC behavior; narrowed FY range by lifting bottom end .
NJOY pathway: Active litigation/appeal options; product workarounds for disputed patents in motion; SE pathway considered for faster FDA authorization .
Discount strategy (Basic): Targeted store expansion with RGM analytics to retain consumers in portfolio while protecting Marlboro premium franchise .
Enforcement impact: Early signs of illicit disposable shortages; misdeclaration tactics persist; need consistent multi-agency action .
Tariffs: Limited cost impact; materials sensitivity; focus on consumer purchasing power; supply chain optionality for NJOY .

Estimates Context

Q2 2025 actuals vs consensus: Adjusted diluted EPS $1.44 vs $1.38* (beat); Revenues net of excise taxes $5.29B vs $5.19B* (beat) . Values retrieved from S&P Global.
Implications: Street may need to raise oral tobacco profitability assumptions (on! growth), maintain caution on volume trajectories in combustibles given illicit e‑vapor dynamics and discount mix .

Key Takeaways for Investors

Strong quality of earnings: Margin expansion and oral tobacco profit growth drove an EPS beat; price realization offset volume pressure in combustibles .
Guidance improved at the low end; capital returns intact: Expect continued buyback execution ($400M remaining) and dividend support; FY tax/CapEx/D&A maintained .
Oral category mix shift accelerating: Nicotine pouches now 52% of oral category; on! scaling with brand activations; watch competitive pouch share and segment margins .
Combustible volumes remain under pressure: Illicit disposables continue to siphon demand; Basic expansion helps portfolio retention, but industry declines likely persist until enforcement materially improves .
NJOY optionality developing: Patent workaround at product lock and supply-chain flexibility provide a path back when market conditions/regulatory backdrop are viable; timing remains uncertain .
Near-term trading: Positive reaction likely anchored on EPS beat and raised guidance floor; watch headlines on enforcement actions/tariffs and any NJOY IP updates as catalysts .
Medium-term thesis: Earnings compounding via pricing discipline, oral tobacco growth, and capital returns; risk factors include regulatory pace (PMTA authorizations), illicit market persistence, and ATC macro sensitivity .

Appendix Tables

Q2 2025 vs Consensus (S&P Global)

Metric	Actual	Consensus*	Surprise
Adjusted Diluted EPS ($)	$1.44	$1.38*	Beat
Revenues net of excise taxes ($USD Billions)	$5.29	$5.19*	Beat