Image source: Altria Group.

Tobacco giant Altria Group (MO +0.95%) has successfully overcome numerous challenges in its history, including threats from litigation, government regulation, and consumer advocacy groups. Even as cigarette smoking has become less popular and volumes of cigarette sales have generally declined, Altria has used the pricing power of its key Marlboro brand to generate higher net income over time. Coming into its second-quarter financial report, Altria investors expected more of the same from the tobacco maker, and although some were concerned with a decline in its top line, solid earnings performance showed that Altria is still making progress in its profitability. Let's take a closer look at Altria and what it said in its most recent report.

A mixed performance from Altria

Altria's second-quarter results didn't give investors everything they had hoped to see. Total revenue fell 1.4% to $6.52 billion, and sales net of excise taxes weighed in at $4.88 billion, which was substantially less than the $5.01 billion consensus forecast among those following the stock. Net income, however, jumped 14% to $1.65 billion, and after accounting for certain extraordinary items, adjusted earnings of $0.81 per share came in $0.01 better than most investors had expected.

Taking a closer look at Altria's businesses, the key smokeable products segment took an even more substantial hit than the company overall. Revenue net of excise taxes dropped 1.1%, and it took higher pricing to overcome the decline in sales and produce gains in adjusted operating-company income of about 4.5%. Even so, that growth rate represented only about half the pace of its previous quarter's growth, and a massive 5% plunge in cigarette volume to 31.5 billion showed the pressure that Marlboro and Altria's other premium cigarette brands have been under lately. Overall market share for the cigarette group remained unchanged at 51.4%, but Marlboro lost a tenth of a percentage point as discount brands picked up the slack. Altria's cigar market share continued its decline, falling more than a full percentage point to 26.7%.

The smokeless products segment, on the other hand, continued its winning ways. Revenue net of excise tax was up more than 9%, and that produced adjusted operating company income growth of almost 14%. Domestic shipment volume climbed 4.3%, and Copenhagen in particular managed to produce double-digit percentage growth that singlehandedly overcame weakness from Skoal and other products. Market share rose to nearly 56%, with Copenhagen and Skoal making up the lion's share of Altria's exposure to the market.

Finally, Altria's wine business posted mixed results. Revenue climbed 6%, but acquisition costs held back reported operating company income. On an adjusted basis, however, operating company income rose 6% as well, and volume rose 3% to 2.12 million cases.

CEO Marty Barrington kept his comments simple about Altria's performance. "Our core tobacco companies performed extremely well," Barrington said, "behind solid performance from their leading premium brands." The CEO also noted the dividends that the company has paid to shareholders, emphasizing the attractive income that Altria has produced historically.

What's ahead for Altria?

Altria also made a minor boost to its guidance for the full 2016 year. It now expects adjusted earnings to come in between $3.01 and $3.07 per share, which is a penny or two higher than its previous guidance for the year indicated.

However, a lot depends on the long-standing effort of Anheuser-Busch InBev to acquire SABMiller, in which Altria holds a substantial stake. Altria noted that the beer maker has gotten regulatory approval in nearly two dozen jurisdictions, and the increase to Anheuser-Busch's buyout offer in late July will hopefully dispel concerns that the decline in the British pound following the U.K. Brexit vote has unfairly reduced the true value of the pound-denominated cash offer that most SABMiller shareholders will receive. Altria expects to have two directors on the beer giant's board after the merger, and that could lead to interesting discussions about the future direction of Anheuser-Busch InBev and Altria's role in it.

Investors weren't entirely comfortable with the poor sales performance, sending Altria shares down almost 2% immediately after the report's release. For the most part, however, Altria has continued to do well in promoting its growth even in the face of adverse trends. As long as it can keep finding ways to grow its bottom line, Altria should maintain the long-term upward trend in its share price.