Why You Can Expect Altria Earnings to Keep Rising

Image: Altria.

Tobacco giant Altria Group (MO 0.78%) has defied naysayers for decades, overcoming threats of product liability litigation, regulatory restrictions, and soaring taxes to maintain its profitability. In fact, Altria has consistently grown its earnings, and with its pricing power for its key Marlboro brand and other well-known product names, Altria expects that growth to continue well into the future. With the tobacco company reporting its second-quarter earnings on Wednesday, Altria investors have remained optimistic about the stock even with some potential headwinds facing the company. Let's take an early look at how Altria Group has done over the past quarter and the most likely way it can sustain its earnings momentum into the second half of the year.

Stats on Altria Group

Source: Yahoo! Finance.

Can Altria earnings really keep climbing?
In recent months, investors have gotten slightly more optimistic about Altria earnings, boosting their full-year projections for 2015 and 2016 by a penny per share each. The stock has also held up well, climbing 4% since late April even as the overall market has lost ground over that timeframe.

Altria's first-quarter results from April offer a good example of how the cigarette giant has managed to keep its bottom line moving in the right direction. Adjusted earnings climbed by double-digit percentages for the quarter, with Altria succeeding in using price increases to push overall revenue up 5% and cost-cutting measures to squeeze more net income from its sales success. Volume increases of 1% for the key Philip Morris USA unit provided icing on the cake, as Altria said that it expects full-year 2015 results to come in between $2.75 and $2.80 per share, giving investors as much as 9% growth from 2014 levels.

Yet the real tug of war among Altria investors comes from two strong forces pushing the stock in opposite directions. On one hand, Altria has a solid reputation for being a defensive stock, as its customers tend to remain loyal even during tough economic times. As a result, when the market starts to get choppy -- as it has done lately -- conservative investors flock to stocks like Altria in the hopes that they will hold up better in a general stock market downturn than riskier stocks with stronger growth prospects.

On the other hand, though, Altria's healthy dividend makes the stock trade somewhat like a fixed-income security, and the threat of higher interest rates from the Federal Reserve have taken their toll on high-yielding dividend stocks throughout the market. It's unclear when the Fed will make its move, and after years of false calls by investors, the central bank seems reluctant to pull the trigger until it's absolutely sure that the economy can sustain its recovery. When rates start to rise, though, they could pressure Altria's share price accordingly.

Within Altria, corporate executives are looking at reduced-risk products as a driver of long-term growth. Early strength from the MarkTen line of e-cigarette and e-vapor products has many people excited about Altria's prospects even if traditional cigarettes continue to decline. Still, some investors are skeptical that tobacco alternatives will ever produce the amazing results that Altria has reaped from cigarettes throughout its history.

In the Altria earnings report, look closely to see how the tobacco giant responds to the new competition that its recently merged rivals now represent within the industry. Some fear that Altria could see pricing pressure as a result of more aggressive moves from its new arch-enemy, but others think that the reduction in overall competition within the industry could actually benefit both companies. As long as Altria can keep earnings climbing, investors are likely to flock to the stock regardless of market conditions and keep collecting their dividend checks well into the future.