Investors began the year excited about Altria Group (NYSE:MO), pushing the tobacco stock to big gains. Yet over the past month, Altria has fallen back, and some wonder how much longer the company will be able to offset the steady drop in cigarette demand by boosting prices.

Altria will report its second-quarter financial results on Thursday, July 27, and most of those following the stock expect modest gains in revenue and earnings. What's more important for investors to look at is how Altria intends to move forward with its big-picture strategic plan, which advocates a balanced approach toward its legacy traditional cigarette and smokeless tobacco business as well as taking advantage of shifting consumer attitudes toward alternatives like e-cigarettes and heated tobacco product.

Stats on Altria Group



Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$5.02 billion*

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance. * Net of excise tax.

What's next for Altria earnings?

In recent months, Altria investors have pushed down their views on future earnings slightly, but not by a huge margin. The cuts have amounted to $0.01 per share for the just-ended quarter as well as the 2017 and 2018 full-year periods. The stock is up 2% since mid-April, but it has given up what had been more significant gains within the past several weeks.

Altria's first-quarter results included some warning signs that those who follow the stock weren't used to seeing. Sales gains of just over 1% were smaller than expected, but the real surprise was that Altria failed to top the consensus forecast on its bottom line. The key Marlboro cigarette brand lost market share, and the recall of smokeless tobacco products during the period weighed on its overall results as well. CEO Marty Barrington characterized the challenges as "short-term headwinds" and was upbeat for the remainder of the year, and shareholders generally agreed, overcoming a kneejerk downward move quite quickly.

Old-style cigarettes and filters.

Image source: Altria Group.

The more important question for shareholders in the tobacco giant is whether Altria's long-term strategy will pay off. In the company's annual shareholder meeting, Altria offered a four-part mission for the cigarette maker, saying that it needed to reduce the harm of tobacco products, market products more responsibly, manage its supply chain more effectively, and create a positive culture and give employees development opportunities.

Exactly how Altria will implement its strategic plan remains to be seen, and some investors aren't entirely comfortable with how it will play out. A call for reduced risk seems to imply a commitment to products like MarkTen e-cigarettes or the iQOS heated tobacco system, but Altria has said before that it intends to have a more balanced approach, which suggests it wants its traditional cigarette business to survive far into the future and continue to be a part of its overall success.

One thing that should help Altria this quarter is the performance from brewer Anheuser-Busch InBev (NYSE:BUD). Altria owns a more than 10% stake in A-B InBev, and because Altria includes the beer maker's results with a one-quarter lag, we already know what to expect. Anheuser-Busch's first-quarter results were strong, with a 7% rise in revenue and a big boost in earnings. The integration of the SABMiller acquisition continued to go well with more than $250 million in synergy-based cost savings, but organic growth was also quite impressive, showing that A-B InBev is far from having given up on its core business. The Stella Artois and Corona brands continued to lead the way forward, and Altria should be pleased about getting to share in the success of the beer business.

In the Altria earnings report, investors need to stay attentive to how the management team is making decisions about which areas of its diverse business get the most attention. The company has plenty of growth opportunities, but it faces the challenge of pursuing growth without endangering its highly successful core tobacco business. If Altria reports another disappointing quarter, then shareholders will need to take a closer look at whether the tobacco giant can make the transition to meet changing consumer preferences in the industry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.