Tobacco stocks have performed badly in 2018, and even industry leader Altria Group (NYSE:MO) hasn't been able to avoid the carnage. With the stock down 20% halfway through the year, Altria is dealing with a host of challenges, ranging from increased regulatory attention to alternative products and calls from dramatic reductions in nicotine levels in its existing product lineup.

Altria will likely release its second-quarter financial report about a month from now on July 26. Yet already, shareholders are clamoring for the company to come up with a viable strategy to work past its recent woes and find a new growth path higher. Without a more definitive plan from newly installed CEO Howard Willard to find a clearer growth trajectory, Altria risks remaining under pressure for the rest of 2018.

Stats on Altria Group's second-quarter earnings

EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$5 billion*

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


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

What's ahead for Altria?

Investors haven't been as confident about Altria's earnings prospects lately as they were in the past. Over the last three months, investors have scaled back their expectations for the current quarter, although they believe that better performance later in the year could boost full-year earnings projections. The stock, though, has been weighed down, falling almost 9% since late March.

Altria's first-quarter report started off the year on a mixed note. Revenue in the smokeable products unit, which includes the key Marlboro brand along with other cigarette offerings, was higher by just a fraction of a percent, with Altria's regular strategy of boosting prices was just barely able to offset greater promotional investment and reduced sales volumes. Cigarette shipments were down more than 4% from year-earlier levels, and Altria saw continued deterioration in its market share, which stayed just above the 50% mark. Altria's smokeless tobacco unit rebounded from a tough first quarter in 2017, and earnings from the tobacco company's investment in beer giant Anheuser-Busch also paid off well.

Sign with Altria name and logo on it, outside with a flagpole behind it.

Image source: Altria Group.

One even larger threat emerged from an unexpected corner during the quarter. For a while, Altria and its peers in the industry have looked to potential reduced-risk products like e-cigarettes and heated tobacco units as possibly replacing some of their lost sales from traditional cigarettes. The popularity of alternative products has been on the rise, especially with competitor JUUL Labs and its line of e-cigarettes. Yet when Altria partner Philip Morris International (NYSE:PM) reported its latest quarterly results, they included an unexpected slowdown in growth rates of adoption of its iQOS heated tobacco system. Altria hopes eventually to win approval from the Food and Drug Administration to sell iQOS in the U.S. through a licensing agreement with Philip Morris, and the possibility that the system might not have as steep and long-lasting a growth curve as previously expected attacked the fundamental underpinnings of the hopes many investors have about Altria's long-term future.

Looking ahead, one of the most important considerations will be how Howard Willard puts his mark on Altria as new CEO. So far, Willard hasn't been all that outspoken about his vision, having chosen not to speak either on Altria's first-quarter conference call or at its annual shareholder meeting in May. However, one of Willard's first moves was to make some major organization and leadership changes within Altria, establishing two separate divisions to cover core tobacco operations and innovative tobacco products separately. By changing the traditional smokeable and smokeless tobacco segments, Willard recognizes that innovation will be an essential part of Altria's future survival, and he needs to be able to measure that directly. With Nu Mark to oversee the development of e-cigarettes, oral nicotine products, and similar alternatives, Altria is concentrating its highest-potential projects under longtime smokeless tobacco executive Brian Quigley while leaving its core portfolio under the direct management of Nu Mark president Jody Begley.

Reorganization efforts by themselves won't solve Altria's problems, and regulation will remain a key impediment to growth prospects. Altria's second-quarter earnings aren't likely to show huge progress, but even incremental gains should be received well if they come with a clearer view of what Willard and his executive team intend to do to make the most of the tobacco giant's business opportunities. Building confidence in the future is the best thing Altria could do to bounce back from its recent challenges.