2017 has started out well for Altria Group (MO 0.22%), and the tobacco stock saw a double-digit percentage rise in value early in the year before giving back a portion of those gains over the past couple of months. Yet over the long run, Altria is still navigating the difficult environment of falling cigarette demand, and investors want to know whether its strategy of raising prices will continue to work indefinitely.

As investors prepare for Altria's first-quarter financial report on May 2, many admit that the tobacco giant's growth is likely to be sluggish. Yet they still hope that the company will be able to come up with a long-term strategy to expand and improve the health of the business going forward. Let's take an early look at Altria with an eye toward what the Marlboro producer is likely to say in its quarterly report.

Stats on Altria Group

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$4.64 billion*

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance. * Net of excise tax.

Can Altria earnings climb?

Investors have gotten a bit less optimistic about Altria earnings in recent months, reducing their first-quarter projections by $0.02 per share and shaving 1% from their calls for the 2017 and 2018 years. The stock has held its own, climbing 2% since the end of January.

Altria's fourth-quarter results warned investors that the new year might end up being somewhat uncomfortable. Revenue was up just a fraction of a percent, and even after taking out large gains from the sale of its stake in beer company SABMiller, Altria managed to produce better-than-expected earnings growth. Yet cigarette sales volume fell 5%, putting ongoing pressure on prospects for overall growth, and better performance in the smokeless tobacco and wine units weren't enough to make up the difference. Moreover, Altria said that adjusted earnings would rise at a 7.5% to 9.5% pace in 2017, which was somewhat slower than the 8% to 10% that most investors prefer to see.

Moreover, the appearance of results from Anheuser-Busch InBev (BUD -0.94%) might not have the positive impact that Altria investors want. Because of the way that their respective businesses are structure and accounted for, Altria reports Anheuser-Busch results on a one-quarter lag. Therefore, it's A-B InBev's fourth-quarter results that will show up on Altria's first-quarter report, and the beer company's performance didn't live up to the hopes of its investors last quarter. Sales gains of just 1% stemmed from falling beer volume and even weaker performance in the company's non-beer portfolio. Net income per share fell substantially. Altria has high hopes for the beer business in the long run, but it seems likely to offer the support Altria shareholders would have liked to see this time around.

Still, Altria is working hard to bolster its business going forward. The company is set to be a prime beneficiary of partner Philip Morris International's efforts to gain acceptance for its iQOS heated tobacco platform from U.S. regulators. At the end of March, the U.S. Food and Drug Administration received a premarket tobacco application from the international tobacco giant, complementing its late-2016 filing of a modified risk tobacco product application. If iQOS receives FDA approval, Altria will have exclusive rights to sell and distribute the product within the U.S. market. If experiences that iQOS has had in countries like Japan are any indication, reduced-risk products could be a driver of new growth for the company -- albeit with some risks of cannibalization from Altria's traditional cigarettes.

In the Altria earnings report, investors should stay focused on the company's overall core mission, seeing how it balances its traditional cigarette and smokeless tobacco businesses with alternative products going forward. It will take smart strategic handling for Altria to navigate shifting customer demand as the reduced-risk space develops, but the Marlboro maker has a strong hand to go up against its competitors.