Investors in Altria Group (NYSE:MO) weren't entirely pleased with the roughly 9% total return the stock gave them in 2017. With a long-term track record of outperforming the market, posting gains that were less than half of what broader market benchmarks produced was a disappointment for many, and shareholders want Altria to find ways to up its game in 2018.

The company's fourth-quarter earnings report, scheduled for release on Feb. 1, could be instrumental in showing what's ahead for the tobacco giant in the coming year. Let's look at what Altria investors currently expect from the company and whether the stock will be able to put up better gains as a result.

Old-style filtered brown cigarette on top of an old handwritten cursive letter.

Image source: Altria.

Stats on Altria Group

Analyst EPS Estimate

$0.80

Change From Year-Ago EPS

17.6%

Revenue Estimate

$4.82 billion*

Change From Year-Ago Revenue

1.9%

Earnings Beats in Past 4 Quarters

2

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

What's ahead for Altria earnings?

Investors have ramped up their expectations over the past few months for Altria's earnings. They've stayed relatively steady on what they're looking to see in the fourth quarter, but they've raised their projections for the 2018 year by $0.28 per share, or nearly 8%. The stock has responded favorably as well, picking up 15% since late October.

Altria has traditionally found ways to keep its profits rising even when it faces pressure from the long-term secular decline in cigarette smoking. For instance, in its third-quarter financial report back in October, Altria suffered a 1% drop in revenue net of excise taxes, but it was still able to boost its net income by roughly 70%. Some of those gains came from one-time items, but even so, bottom-line performance came from cost-cutting measures and more favorable results on the litigation front.

Nevertheless, some recent trends have been troubling. Shipment volumes were down 6% last quarter compared to the year-earlier period, and that resulted in a decline in market share for the key Marlboro brand of about half a percent. That in turn cut Altria's overall market share to just over 50%, showing the advantages that rivals like British American Tobacco's (NYSE:BTI) Reynolds American unit have made in fighting back against the dominant player in the U.S. tobacco market.

How will Altria respond?

The primary way in which Altria appears to be moving forward is by emphasizing the importance of products other than cigarettes to its long-term future. The tobacco giant has already moved aggressively into the e-cigarette market, and its Nu Mark subsidiary has dramatically increased the retail distribution reach of its MarkTen brand of e-cigarettes. Now, Altria hopes that it will be able to add domestic sales of the iQOS heated tobacco unit, pending approval from the U.S. Food and Drug Administration of the application from Altria's former subsidiary and current reduced-risk products development partner, Philip Morris International (NYSE:PM).

To win in e-cigarettes, Altria will have to overcome a big first-mover advantage from Juul Labs, which has developed 40% market share. Juul's innovative nicotine salts-based liquid produces a different experience from other liquid nicotine-containing media, and customers have apparently liked the tobacco origins of the product. Yet Altria has size on its side, along with the marketing expertise and retail reach to mount a considerable battle against smaller rivals in the space.

Finally, Altria will also continue to see results from its holdings in Anheuser-Busch InBev (NYSE:BUD). With one-time gains from the exchange of its SABMiller stake falling off its trailing earnings after its fourth-quarter report, investors will get a clearer view of Altria's overall profit trajectory going forward.

Investors should watch the Altria earnings report to see what comments management makes about the company's long-term strategy. The challenge that Altria faces is figuring out how to make a successful transition away from traditional cigarettes toward reduced-risk alternatives while avoiding major hits to its current earnings. So far, the tobacco giant has managed to thread that needle successfully, but it looks like that task will become more difficult until the company can get some clarity about the role that alternatives to cigarettes can play within Altria's overall business.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.