Altria Group, Inc.
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Item 1. Business.
General Development of Business
When used in this Annual Report on Form 10-K (“Form 10-K”), the terms “Altria,” “we,” “us” and “our” refer to either (i) Altria Group, Inc. and its consolidated subsidiaries or (ii) Altria Group, Inc. only and not its consolidated subsidiaries, as appropriate in the context.
We have a leading portfolio of tobacco products for U.S. tobacco consumers age 21+. We are Moving Beyond SmokingTM, by responsibly transitioning adult smokers to a smoke-free future, competing vigorously for existing smoke-free adult nicotine consumers and exploring new growth opportunities - beyond the United States and beyond nicotine (“Vision”).
Our wholly owned subsidiaries include Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and is a wholly owned subsidiary of PM USA; UST LLC (“UST”), which, through its wholly owned subsidiary U.S. Smokeless Tobacco Company LLC (“USSTC”), is engaged in the manufacture and sale of moist smokeless tobacco (“MST”) products; Helix Innovations LLC (“Helix”) and its foreign affiliates (“Helix International”), which are engaged in the manufacture and sale of oral nicotine pouches; and NJOY, LLC (“NJOY”), which is engaged in the manufacture and sale of e-vapor products. We operate primarily within the United States and generate substantially all of our revenue from domestic customers. Other wholly owned subsidiaries include Altria Group Distribution Company (“AGDC”), which provides domestic sales and distribution services to our operating companies, and Altria Client Services LLC (“ALCS”), which provides various support services to our companies in areas such as legal, regulatory, research and product development, consumer engagement, finance, human resources and external affairs.
At December 31, 2025, we owned a 75% economic interest in Horizon Innovations LLC (“Horizon”), a joint venture with JTI (US) Holding, Inc. (“JTIUH”), a subsidiary of Japan Tobacco Inc. (“Japan Tobacco”), which owned the remaining 25% economic interest. Horizon is responsible for the U.S. marketing and commercialization of heated tobacco stick (“HTS”) products owned by either party.
At December 31, 2025, our reportable segments were smokeable products, oral tobacco products and e-vapor products. Our all other category included (i) Horizon; (ii) Helix International; and (iii) other business activities, which primarily consists of research and development (“R&D”) expense related to certain new product platforms and technologies. For further information, see Note 15. Segment Reporting to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data of this Form 10-K (“Item 8”).
Our investments include Anheuser-Busch InBev SA/NV (“ABI”) and Cronos Group Inc. (“Cronos”), which we account for under the equity method of accounting using a one-quarter lag.
Description of Business
Portions of the information relating to this Item are included in Operating Results by Business Segment in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K (“Item 7”).
Our operating companies include PM USA, Middleton, USSTC, Helix and NJOY.
The products of our operating companies include: (i) smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA and machine-made large cigars manufactured and sold by Middleton; (ii) oral tobacco products, consisting of MST products manufactured and sold by USSTC and oral nicotine pouches manufactured and sold by Helix; and (iii) e-vapor products manufactured and sold by NJOY.
▪Cigarettes: PM USA is the largest cigarette company in the United States and substantially all cigarettes are manufactured and sold to customers in the United States. Marlboro, the principal cigarette brand of PM USA, has been the largest-selling cigarette brand in the United States for over 50 years. Total smokeable products segment’s cigarettes shipment volume in the United States was 61.8 billion units in 2025, a decrease of 10.0% from 2024.
▪Cigars: Middleton is engaged in the manufacture and sale of machine-made large cigars. Middleton contracts with a third-party importer to supply substantially all of its cigars and sells substantially all of its cigars to customers in the United States. Black & Mild is the principal cigar brand of Middleton. Total smokeable products segment’s cigars shipment volume was approximately 1.8 billion units in 2025, an increase of 1.8% from 2024.
▪Oral tobacco products: USSTC is the leading producer and marketer of MST products. The oral tobacco products segment includes the premium brands, Copenhagen and Skoal, and a value brand, Red Seal, sold by USSTC. In addition, the oral tobacco products segment includes on! oral nicotine pouches sold by Helix. Substantially all of the oral tobacco products are manufactured and sold to customers in the United States. Total oral tobacco products segment’s shipment volume was 732.4 million units in 2025, a decrease of 5.5% from 2024.
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▪E-Vapor products: NJOY contracts with third-party importers to supply all of its products and sells its e-vapor products to customers in the United States. NJOY’s product portfolio of tobacco and menthol e-vapor products is covered by marketing granted orders (“MGO”) from the U.S. Food and Drug Administration (“FDA”). NJOY ACE, the principal e-vapor product of NJOY, is subject to an exclusion order and cease-and-desist orders issued by the U.S. International Trade Commission (“ITC”) prohibiting the importation and sale of NJOY ACE in the United States, as further discussed in Note 18. Contingencies to our consolidated financial statements in Item 8 (“Note 18”).
▪Other tobacco products: In connection with the joint venture agreement with JTIUH, Horizon will market and commercialize HTS products, which are defined in the joint venture agreement as products that include both (i) a tobacco heating device intended to heat the consumable without combusting and (ii) a consumable that meets the definition of a cigarette under the U.S. Federal Cigarette Labeling and Advertising Act. Horizon is responsible for the U.S. commercialization of current and future HTS products owned by either party and, upon authorization by the FDA, will become the exclusive entity through which the parties market and commercialize HTS products in the United States. Upon FDA authorization of Ploom HTS products, JTIUH will supply Ploom HTS devices and PM USA will manufacture Marlboro HTS consumables for U.S. commercialization. As of February 25, 2026, there are no products in the U.S. marketplace from the joint venture.
▪Distribution, Competition and Raw Materials: Our tobacco subsidiaries sell their tobacco products principally to wholesalers (including distributors) and large retail organizations, including chain stores.
The market for tobacco products is highly competitive, characterized by brand recognition and loyalty, with product quality, taste, price, product innovation, marketing, packaging, distribution and promotional activities constituting the significant methods of competition. Promotional activities include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions, product promotions, coupons and other discounts.
In the United States, under a contract growing program, PM USA purchases the majority of its burley and flue-cured leaf tobaccos directly from domestic tobacco growers. Under the terms of this program, PM USA agrees to purchase the amount of tobacco specified in the grower contracts that meets PM USA’s grade and quality standards. PM USA also purchases a portion of its tobacco requirements through leaf merchants.
Middleton purchases burley, dark air-cured and flue-cured leaf tobaccos through leaf merchants. Middleton does not have a contract growing program.
USSTC purchases dark fire-cured, dark air-cured and burley leaf tobaccos from domestic tobacco growers under a contract growing program. Under the terms of this program, USSTC agrees to purchase the amount of tobacco specified in the grower contracts that meets USSTC’s grade and quality standards.
Helix, through an affiliate, and NJOY purchase tobacco-derived nicotine materials from suppliers and believe their suppliers can satisfy current and anticipated future production requirements.
Our tobacco subsidiaries believe there is an adequate supply of tobacco in the world markets to satisfy their current and anticipated production requirements.
Other Matters
▪Customers: For a discussion of our largest customers, including their percentages of our consolidated net revenues for the years ended December 31, 2025, 2024 and 2023, see Note 15. Segment Reporting to our consolidated financial statements in Item 8 (“Note 15”).
▪Executive Officers of Altria: The disclosure regarding executive officers is included in Item 10. Directors, Executive Officers and Corporate Governance - Information about Our Executive Officers as of February 13, 2026 of this Form 10-K.
▪Human Capital Resources: We believe our workforce is critical to achieving our Vision. Attracting, developing, retaining and deploying the best talent with the skills to make significant progress toward our Vision is a key business priority. Moreover, we recognize the importance of doing business the right way. We believe culture influences employee actions and decision making. This is why we dedicate resources to promoting an engaging workplace; attracting, developing, retaining and deploying talented employees to build a high-performing and diverse talent pipeline; promoting a culture of compliance and integrity; creating a safe workplace; and rewarding and recognizing employees for both the results they deliver and, importantly, how they deliver them.
Oversight and Management
Our Human Resources department is responsible for managing employment-related matters, including recruiting and hiring, onboarding, compensation and benefits design and implementation, performance management, career management and succession planning and professional and learning development. Our Board of Directors (“Board of Directors” or “Board”) and the Compensation and Talent Development Committee provide oversight of human capital matters, including reviewing initiatives and programs related to corporate culture and enterprise-wide talent development.
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One of our core Responsibility Focus Areas revolves around our people as we are focused on our employees’ safety, wellbeing and opportunity. We invest in our people to support their development while creating a safe and empowering environment where we believe our employees can thrive. We regularly report specific goals and progress metrics related to these efforts on our website (www.altria.com).
Compensation and Benefits
Our compensation and benefits programs are designed to help us attract, retain and motivate strong talent. However, we recognize that the decreasing social acceptance of tobacco usage may impact our ability to attract and retain talent with skills necessary for us to achieve our Vision. We work to manage this risk by, among other things, targeting total compensation packages to be above peer companies with which we compete for talent. Depending on employee level, total compensation includes different elements – base salary, annual cash incentives, long-term equity and cash incentives and benefits.
We are committed to pay equity across our companies. Based on the most recent annual analysis we conducted in 2025, for employees performing the same or similar duties regardless of any differentiating factors, such as performance and tenure, salaries of our female employees were 98.4% of those of our male employees, and salaries of our employees of color were 98.5% of those of our white employees. If we adjust for differentiating factors that legitimately influence pay, salaries of our female employees were 99.9% of those of our male employees, and salaries of our employees of color were 99.9% of those of our white employees.
In addition to cash and equity compensation, we offer generous employee benefits such as significant company contributions to deferred profit sharing plans, consumer-driven health plan coverage, vacation and holiday pay, disability and life insurance. We also offer up to 12 weeks of paid family leave to bond with a newborn child, the placement of a child for adoption or foster care, or to care for a family member who has a serious health condition. Our benefits also include physical, emotional and financial wellness programs and family creation assistance benefits, such as reimbursement of surrogacy, adoption assistance and doula expenses. While there is some variability in employee benefits across our companies, the examples we provide are available to most employees.
We are also committed to investing in the educational development of our workforce through a tuition refund program for job-related courses or company-related degrees. We also provide eligible employees with a company-funded contribution applied to the employee’s qualified higher education student loans to help reduce student loan debt.
Attracting, Developing, Retaining and Deploying Talent
We are focused on identifying the most qualified talent and investing in leader and employee development to build a diverse talent pipeline prepared and willing to lead at every level. Additionally, we are dedicated to being an engaging place to work for all employees, regardless of personal background or work function. We recognize the critical importance of these efforts toward pursuing our Vision and believe in the value of a workforce composed of a broad and diverse spectrum of backgrounds, skills, experiences and cultures.
Our salaried entry-level recruitment efforts include building relationships with university students, internship opportunities and partnerships with organizations that support a broad range of students. We also hire experienced employees with demonstrated skills and/or leadership capabilities.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections in this Quarterly Report on Form 10-Q (“Form 10-Q”), including our condensed consolidated financial statements and related notes contained in Item 1. Financial Statements of this Form 10-Q (“Item 1”). All references to “Notes” in this MD&A are to Notes to our condensed consolidated financial statements in Item 1. When used in this Form 10-Q, the terms “Altria,” “we,” “us” and “our” refer to either (i) Altria Group, Inc. and its consolidated subsidiaries or (ii) Altria Group, Inc. only and not its consolidated subsidiaries, as appropriate in the context.
In this MD&A section, we refer to the following “adjusted” financial measures: adjusted operating companies income (loss) (“OCI”); adjusted OCI margins; adjusted net earnings; adjusted diluted earnings per share (“EPS”); and adjusted effective tax rates. We also refer to the ratio of debt-to-Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization, as defined in our credit agreement, which includes certain adjustments). These financial measures are not required by, or calculated in accordance with, United States generally accepted accounting principles (“GAAP”) and may not be calculated the same as similarly titled measures used by other companies. These financial measures should thus be considered as supplemental in nature and not considered in isolation or as a
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substitute for the related financial information prepared in accordance with GAAP. For a further description of these non-GAAP financial measures, see the Non-GAAP Financial Measures section below.
Executive Summary
Our Business
We have a leading portfolio of nicotine products for U.S. nicotine consumers age 21+. We are Moving Beyond Smoking® by responsibly transitioning adult smokers to a smoke-free future, competing vigorously for existing smoke-free adult nicotine consumers and exploring new growth opportunities - beyond the United States and beyond nicotine (“Vision”). We previously established our 2028 Enterprise Goals (“2028 Goals”) to provide our investors with specific metrics to measure our progress as we execute on our Vision. For further discussion of our 2028 Goals, see our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”).
Our wholly owned subsidiaries include leading manufacturers of both combustible and smoke-free products. In combustibles, we own Philip Morris USA Inc. (“PM USA”), the most profitable U.S. cigarette manufacturer, and John Middleton Co. (“Middleton”), a leading U.S. cigar manufacturer.
In smoke-free products, we own U.S. Smokeless Tobacco Company LLC (“USSTC”), the leading global moist smokeless tobacco (“MST”) manufacturer, Helix Innovations LLC (“Helix”), a leading manufacturer of oral nicotine pouches, and NJOY, LLC (“NJOY”), an e-vapor manufacturer with products covered by marketing granted orders (“MGO”) from the U.S. Food and Drug Administration (“FDA”). Additionally, we have a majority-owned joint venture, Horizon Innovations LLC (“Horizon”), for the U.S. marketing and commercialization of heated tobacco stick products. As of the date of this Form 10-Q, Horizon had no products in the U.S. marketplace.
The brand portfolios of our operating companies include Marlboro®, Black & Mild®, Copenhagen®, Skoal®, on!® and NJOY®. Trademarks related to Altria referenced in this Form 10-Q are the property of Altria or our subsidiaries or are used with permission.
Our investments in equity securities include Anheuser-Busch InBev SA/NV (“ABI”), the world’s largest brewer, and Cronos Group Inc. (“Cronos”), a leading Canadian cannabinoid company.
Trends and Developments
In this section of the MD&A, we discuss certain factors that have impacted our businesses as of the date of this Form 10-Q. In addition, we are aware of and address certain trends and developments that could, individually or in the aggregate, have a material impact on our businesses, including the value of our investments in equity securities, in the future. In this section, we focus on the discretionary income pressures on adult nicotine consumers, evolving consumer preferences, illicit flavored disposable e-vapor products and supply chain disruptions. Other trends and developments are discussed elsewhere in this MD&A.
Through the second quarter of 2026, U.S. adult nicotine consumers continued to face inflationary pressure on discretionary income, with impacts more pronounced among lower-income consumers. Heightened geopolitical risk and uncertainty following the recent developments in the Middle East contributed to increased energy price volatility, with gas prices averaging $4.05 per gallon during June. Gas prices contributed to elevated inflation in June of 3.5%, above the Federal Reserve’s 2% target.
Overall discretionary income pressures on adult nicotine consumers have resulted in increased discount brand share and contributed to evolving adult nicotine consumer preferences, each of which has negatively impacted the sales volumes of certain of our operating companies’ premium brands. For the second quarter of 2026, the discount retail share of the cigarette category reached 33.8%, an increase of 2.6 share points versus the second quarter of 2025 and 0.5 share points sequentially. When adjusted for trade inventory movements, our smokeable products segment domestic cigarette shipment volume declined by an estimated 4.5% in the second quarter of 2026 versus the second quarter of 2025. When adjusted for trade inventory movements, total estimated domestic cigarette industry volume declined by 5% in the second quarter of 2026 versus the second quarter of 2025. We believe moderating estimated domestic cigarette industry volume decline, which began in the third quarter of 2025, continues to primarily be driven by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products. Additionally, we believe that a significant number of adult nicotine consumers switch among nicotine categories, use multiple forms of nicotine products and try innovative nicotine products, such as e-vapor products and oral nicotine pouches. The U.S. nicotine pouch category continued to grow throughout the second quarter of 2026 to 59.9% of the U.S. oral tobacco category, an increase of 8.1 share points versus the second quarter of 2025 and 1.8 share points sequentially. As innovative smoke-free products evolve to better address the preferences of adult nicotine consumers, these consumers continue to transition from cigarettes and MST products to innovative smoke-free products, which has reduced the sales volumes of our operating companies’ cigarette and MST products.
Various states and the federal government have taken regulatory and enforcement actions against manufacturers, distributors and retailers of illicit flavored disposable e-vapor products. For example, the FDA and U.S. Customs and Border Protection have made it more difficult to import properly declared illicit e-vapor products, seized unauthorized e-vapor products and issued warning letters to importers. Despite these enforcement measures, insufficient actions against manufacturers, distributors and retailers of nicotine products requiring FDA review for which no premarket tobacco product applications (“PMTA”) have been submitted have allowed such products
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to continue to proliferate in the market. We expect that effective enforcement against illicit products will occur more gradually than initially expected and continue to monitor the overall dynamics and competitive threats to our brands across multiple nicotine categories.
We are monitoring volatility in domestic and global economies and disruptions in the supply and distribution chains. This volatility and disruption are the result of several factors, including macroeconomic conditions, raw materials availability and geopolitical events. We continue to assess the impact of volatility on price, availability or quality of tobacco, other raw materials or component parts, and work to mitigate the potential negative impacts of macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors and the development of alternative sourcing strategies.
See Operating Results by Business Segment - Business Environment for additional information on the trends and developments discussed above.
The trends and developments above have not had a material adverse impact on our results of operations, cash flows or financial position or our ability to achieve our Vision. As the trends and developments evolve and new ones emerge, we will continue to evaluate the potential impacts on our businesses, investments and Vision.
Consolidated Results of Operations for the Six Months Ended June 30, 2026
The changes in net earnings and diluted EPS for the six months ended June 30, 2026, from the six months ended June 30, 2025, were due primarily to the following:
| (in millions, except per share data) | Net Earnings | Diluted EPS | ||||||||
For the six months ended June 30, 2025 | $ | 3,455 | $ | 2.04 | ||||||
2025 Acquisition-related items | 77 | 0.05 | ||||||||
2025 Asset impairment, exit and implementation costs | 896 | 0.53 | ||||||||
2025 Tobacco and health and certain other litigation items | 34 | 0.02 | ||||||||
2025 Amortization of intangibles | 62 | 0.04 | ||||||||
2025 ABI-related special items | 1 | — | ||||||||
2025 Cronos-related special items | (16) | (0.01) | ||||||||
2025 Income tax items | 13 | — | ||||||||
Subtotal 2025 special items | 1,067 | 0.63 | ||||||||
2026 NPM Adjustment Items | 9 | — | ||||||||
2026 Acquisition-related items | (10) | — | ||||||||
2026 Asset impairment, exit and implementation costs | (72) | (0.04) | ||||||||
2026 Tobacco and health and certain other litigation items | (74) | (0.04) | ||||||||
2026 Amortization of intangibles | (42) | (0.03) | ||||||||
2026 ABI-related special items | (60) | (0.04) | ||||||||
2026 Cronos-related special items | 2 | — | ||||||||
2026 Income tax items | 30 | 0.02 | ||||||||
Subtotal 2026 special items | (217) | (0.13) | ||||||||
| Fewer shares outstanding | — | 0.03 | ||||||||
| Change in tax rate | 23 | 0.01 | ||||||||
| Operations | 153 | 0.09 | ||||||||
For the six months ended June 30, 2026 | $ | 4,481 | $ | 2.67 | ||||||
2026 Reported Net Earnings and Reported Diluted EPS | $ | 4,481 | $ | 2.67 | ||||||
2025 Reported Net Earnings and Reported Diluted EPS | $ | 3,455 | $ | 2.04 | ||||||
| % Change | 29.7 | % | 30.9 | % | ||||||
2026 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 4,698 | $ | 2.80 | ||||||
2025 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 4,522 | $ | 2.67 | ||||||
| % Change | 3.9 | % | 4.9 | % | ||||||
For a discussion of special items and other business drivers affecting the comparability of statements of earnings amounts and reconciliations of adjusted net earnings and adjusted diluted EPS, see Consolidated Operating Results below.
▪Fewer Shares Outstanding: Fewer shares outstanding were due to shares we repurchased under our share repurchase programs.
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▪Operations: The increase of $153 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI and higher income from our equity investment in ABI, partially offset by lower net periodic benefit income, excluding service cost.
For further details, see Consolidated Operating Results and Operating Results by Business Segment below.
Consolidated Results of Operations for the Three Months Ended June 30, 2026
The changes in net earnings and diluted EPS for the three months ended June 30, 2026, from the three months ended June 30, 2025, were due primarily to the following:
| (in millions, except per share data) | Net Earnings | Diluted EPS | ||||||||
For the three months ended June 30, 2025 | $ | 2,378 | $ | 1.41 | ||||||
2025 Acquisition-related items | 12 | 0.01 | ||||||||
2025 Asset impairment, exit and implementation costs | 12 | 0.01 | ||||||||
2025 Tobacco and health and certain other litigation items | 4 | — | ||||||||
2025 Amortization of intangibles | 31 | 0.02 | ||||||||
2025 ABI-related special items | (16) | (0.01) | ||||||||
2025 Cronos-related special items | 2 | — | ||||||||
2025 Income tax items | 10 | — | ||||||||
Subtotal 2025 special items | 55 | 0.03 | ||||||||
2026 Acquisition-related items | (8) | — | ||||||||
2026 Asset impairment, exit and implementation costs | (67) | (0.04) | ||||||||
2026 Tobacco and health and certain other litigation items | (72) | (0.05) | ||||||||
2026 Amortization of intangibles | (22) | (0.01) | ||||||||
2026 ABI-related special items | (59) | (0.04) | ||||||||
2026 Cronos-related special items | 4 | — | ||||||||
2026 Income tax items | 42 | 0.03 | ||||||||
Subtotal 2026 special items | (182) | (0.11) | ||||||||
| Fewer shares outstanding | — | 0.01 | ||||||||
| Change in tax rate | 12 | 0.01 | ||||||||
| Operations | 35 | 0.02 | ||||||||
For the three months ended June 30, 2026 | $ | 2,298 | $ | 1.37 | ||||||
2026 Reported Net Earnings and Reported Diluted EPS | $ | 2,298 | $ | 1.37 | ||||||
2025 Reported Net Earnings and Reported Diluted EPS | $ | 2,378 | $ | 1.41 | ||||||
| % Change | (3.4) | % | (2.8) | % | ||||||
2026 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 2,480 | $ | 1.48 | ||||||
2025 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 2,433 | $ | 1.44 | ||||||
| % Change | 1.9 | % | 2.8 | % | ||||||
For a discussion of special items and other business drivers affecting the comparability of statements of earnings amounts and reconciliations of adjusted net earnings and adjusted diluted EPS, see Consolidated Operating Results below.
▪Fewer Shares Outstanding: Fewer shares outstanding were due to shares we repurchased under our share repurchase programs.
▪Operations: The increase of $35 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI and higher income from our equity investment in ABI, partially offset by higher general corporate expenses and lower net periodic benefit income, excluding service cost.
For further details, see Consolidated Operating Results and Operating Results by Business Segment below.
Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt,
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charges related to restructuring and other exit activities, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items, certain income tax items, charges associated with tobacco and health and certain other litigation items, resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the Master Settlement Agreement (“NPM Adjustment Items”) and amortization expense associated with definite-lived intangible assets (“amortization of intangibles”). While amortization of intangibles is excluded from our adjusted financial measures, net revenues generated from these definite-lived intangible assets during the periods presented, if applicable, are included in our adjusted financial measures. In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision. Consolidated EBITDA is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources) and includes certain adjustments. Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.
Our management believes that the foregoing financial measures provide useful additional insight into underlying business trends and results, and provide a more meaningful comparison of year-over-year results. Our management uses these financial measures and regularly provides these to our chief operating decision maker (“CODM”) for planning, forecasting and evaluating business and financial performance, including allocating capital and other resources and evaluating results relative to employee compensation targets. The foregoing financial measures are not required by, or calculated in accordance with, GAAP and may not be calculated the same as similarly titled measures used by other companies. The foregoing financial measures should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. When we provide a non-GAAP measure in this Form 10-Q, we also provide a reconciliation of that non-GAAP financial measure to the most directly comparable GAAP financial measure.
Discussion and Analysis
Our critical accounting policies and estimates are discussed in our 2025 Form 10-K; there have been no updates to these critical accounting estimates, except as noted below.
Critical Accounting Estimates
Goodwill and Other Intangible Assets Impairment Testing
We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment as of October 1 of each year, in accordance with our accounting policy, and more frequently if an event occurs or circumstances change that would require an interim quantitative impairment assessment. There have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of June 30, 2026.
E-Vapor Reporting Unit Goodwill
In 2025, we recorded impairments of the values of the goodwill and other intangible assets within our e-vapor reporting unit as a result of the U.S. International Trade Commission (“ITC”) exclusion order and cease-and-desist orders prohibiting the importation and sale of NJOY ACE into the United States and our expectation that effective enforcement against illicit flavored disposable e-vapor products would occur more gradually than initially anticipated. As of December 31, 2025, the estimated fair value and carrying value of the e-vapor goodwill was $610 million after recording impairments during the first and fourth quarters of 2025. In addition, the carrying value of the e-vapor reporting unit’s net assets (including the effect of intercompany debt), which was negative, approximated its estimated fair value.
We believe that the estimated fair value of the e-vapor reporting unit at December 31, 2025 remains reasonable and there are no events or circumstances indicating an impairment for the six and three months ended June 30, 2026. Fair value calculations are sensitive to changes in certain judgments and assumptions. The significant judgments and assumptions that drive the fair value of the reporting unit are the (i) timing and extent of effective enforcement against illicit flavored disposable e-vapor products; (ii) timing and likelihood of regulatory authorizations of e-vapor products, including of NJOY’s products; (iii) timing of the commercialization of NJOY e-vapor products in the United States; (iv) long-term growth of the e-vapor category; and (v) conversion rates of illicit flavored disposable e-vapor consumers to FDA-authorized e-vapor products and, specifically, NJOY’s e-vapor products. Fair value calculations can be negatively affected by changes in these judgments and assumptions, some of which relate to broader macroeconomic conditions and governmental actions outside of our control. If these assumptions or judgments regarding the expectations for the future state of the e-vapor category and NJOY’s business fail to materialize as anticipated, if we experience unfavorable outcomes with respect to litigation proceedings (including actions alleging patent infringement), or if the discount rate used to estimate the fair value increases, we could have additional non-cash impairments of our e-vapor reporting unit goodwill in future periods, which could be material. Based on our 2025 annual impairment test, a hypothetical 1% increase in the discount rate used to estimate the fair value of the e-vapor reporting unit would have resulted in a goodwill impairment charge of approximately $150 million. For further discussion of these factors, see Operating Results by Business Segment - Business Environment below.
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Skoal Trademark Indefinite-Lived Intangible Asset
At December 31, 2025, the estimated fair value of the Skoal trademark exceeded its carrying value by approximately 7% ($0.3 billion). MST products, including Skoal, continued to be negatively impacted due in part to evolving adult nicotine consumer preferences, which have continued to contribute to reductions in sales volumes for MST products, including Skoal. For further discussion, see Trends and Developments above and Operating Results by Business Segment - Business Environment - Summary below.
We believe that the estimated fair value of the Skoal trademark at December 31, 2025 remains reasonable and there are no events or circumstances indicating an impairment for the six and three months ended June 30, 2026. If the decline in sales volume for Skoal is higher than currently estimated and results in material revenue declines, we believe there may be a material adverse effect on the significant assumptions used in performing our valuation. If Skoal’s actual revenue and income or long-term outlook are significantly unfavorable compared to forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have material non-cash impairments of the Skoal trademark in future periods. Based on the 2025 annual impairment test, a hypothetical 1% increase in the discount rate used to estimate the fair value of Skoal trademark would have resulted in an impairment charge of approximately $90 million. For further discussion of these factors, see Operating Results by Business Segment - Business Environment below.
For further discussion of goodwill and other intangible assets see Note 2. Goodwill and Other Intangible Assets, net (“Note 2”).
Consolidated Operating Results
| For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||||||||
| (in millions) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||
| Smokeable products | $ | 10,150 | $ | 9,979 | $ | 5,392 | $ | 5,357 | ||||||||||||||
| Oral tobacco products | 1,382 | 1,407 | 713 | 753 | ||||||||||||||||||
| All other | 7 | (25) | 6 | (8) | ||||||||||||||||||
| Net revenues | $ | 11,539 | $ | 11,361 | $ | 6,111 | $ | 6,102 | ||||||||||||||
| Excise Taxes on Products: | ||||||||||||||||||||||
| Smokeable products | $ | 1,380 | $ | 1,502 | $ | 732 | $ | 787 | ||||||||||||||
| Oral tobacco products | 45 | 50 | 23 | 25 | ||||||||||||||||||
| Excise taxes on products | $ | 1,425 | $ | 1,552 | $ | 755 | $ | 812 | ||||||||||||||
| Operating Income: | ||||||||||||||||||||||
| OCI: | ||||||||||||||||||||||
| Smokeable products | $ | 5,615 | $ | 5,399 | $ | 2,942 | $ | 2,930 | ||||||||||||||
| Oral tobacco products | 816 | 931 | 381 | 498 | ||||||||||||||||||
| All other | (153) | (1,122) | (77) | (108) | ||||||||||||||||||
| Amortization of intangibles | (46) | (74) | (23) | (37) | ||||||||||||||||||
| General corporate expenses | (140) | (116) | (87) | (53) | ||||||||||||||||||
| Operating income | $ | 6,092 | $ | 5,018 | $ | 3,136 | $ | 3,230 | ||||||||||||||
As discussed further in Note 9. Segment Reporting (“Note 9”), our CODM reviews OCI, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate the performance of, and allocate resources to, our segments. Our management believes it is appropriate to disclose this measure to help investors analyze our business performance and trends.
36
The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the six months ended June 30:
| (in millions of dollars, except per share data) | Earnings before Income Taxes | Provision for Income Taxes | Net Earnings | Diluted EPS | ||||||||||||||
2026 Reported | $ | 5,788 | $ | 1,307 | $ | 4,481 | $ | 2.67 | ||||||||||
| NPM Adjustment Items | (11) | (2) | (9) | — | ||||||||||||||
| Acquisition-related items | 14 | 4 | 10 | — | ||||||||||||||
| Asset impairment, exit and implementation costs | 94 | 22 | 72 | 0.04 | ||||||||||||||
Tobacco and health and certain other litigation items | 97 | 23 | 74 | 0.04 | ||||||||||||||
| Amortization of intangibles | 46 | 4 | 42 | 0.03 | ||||||||||||||
| ABI-related special items | 78 | 18 | 60 | 0.04 | ||||||||||||||
| Cronos-related special items | (2) | — | (2) | — | ||||||||||||||
| Income tax items | — | 30 | (30) | (0.02) | ||||||||||||||
2026 Adjusted for Special Items | $ | 6,104 | $ | 1,406 | $ | 4,698 | $ | 2.80 | ||||||||||
2025 Reported | $ | 4,801 | $ | 1,346 | $ | 3,455 | $ | 2.04 | ||||||||||
| Acquisition-related items | 95 | 18 | 77 | 0.05 | ||||||||||||||
| Asset impairment, exit and implementation costs | 903 | 7 | 896 | 0.53 | ||||||||||||||
| Tobacco and health and certain other litigation items | 45 | 11 | 34 | 0.02 | ||||||||||||||
Amortization of intangibles | 74 | 12 | 62 | 0.04 | ||||||||||||||
| ABI-related special items | 2 | 1 | 1 | — | ||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-09-09 | McQUADE KATHRYN B. | Director | Buy | +1,500 | $67.62 | $101,430 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-10-30 10-Q expected by 2026-11-09 (in 47 days)
- ~2027-02-25 10-K expected by 2027-02-28 (in 165 days)
- ~2027-04-30 10-Q expected by 2027-05-10 (in 229 days)
- ~2027-07-30 10-Q expected by 2027-08-09 (in 320 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-08-28 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-07-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-30 10-Q Quarterly Report
- 2026-05-27 10-K/A Annual Report (Amended)
- 2026-05-18 8-K Officer/Director Change; Shareholder Vote Results; Financial Statements and Exhibits
- 2026-04-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-30 10-Q Quarterly Report
- 2026-02-25 10-K Annual Report
- 2026-01-29 8-K Other Events; Financial Statements and Exhibits
- 2026-01-29 8-K Earnings Release; Officer/Director Change; Financial Statements and Exhibits
- 2025-12-11 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2025-10-30 10-Q Quarterly Report
- 2025-10-30 8-K Earnings Release; Other Events; Financial Statements and Exhibits
- 2025-10-09 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2025-08-06 8-K Other Events; Financial Statements and Exhibits