Shares of Altria (NYSE:MO) recently tumbled after the tobacco giant posted its second-quarter earnings. Its revenue, excluding excise taxes, rose 6% annually to $5.19 billion, beating expectations by $110 million. Its adjusted earnings grew 9% to $1.10 per share and matched estimates.

Those headline numbers look solid, but its other metrics tell a mixed story. Let's discuss six key takeaways and how they could impact Altria's future.

Investors review a company's financials.

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1. A smokeable surprise

Altria, which generates nearly all of its revenue from the U.S., has been struggling with declining cigarette shipments for years. That's why it was surprising when Altria's shipments of smokeable products grew 0.4% annually, defying expectations for a substantial decline. Its shipments of cigarettes and cigars rose 0.3% and 2.6%, respectively.

However, most of that growth was driven by trade inventory movements and other factors. Excluding those factors, Altria's cigarette shipments declined 7%, compared to an industrywide decline of 6% (on the same basis). Therefore, smoking rates are still declining in the U.S., and Altria's shipments will continue to slide.

2. Waning interest in smokeless products

Meanwhile, shipments of Altria's smokeless products (mainly snuff and snus) fell 3.6%, compared to expectations for a 2.4% decline. Adjusting for trade inventory movements, shipments fell about 3%.

Altria attributed that soft demand to rising interest in other alternative nicotine products, including nicotine pouches, e-cigarettes, and heated tobacco, which are all included in its smaller "all other" segment.

3. Market share losses in smokeable and smokeless products

Altria is also losing ground to domestic rivals in both the smokeable and smokeless markets. It controlled 49.8% of the cigarette market in the first six half of 2019, compared to 50.4% in the first half of 2018. Marlboro's market share slipped from 43.3% to 43.2%.

Its share of the smokeless market fell from 54% to 53.8% during the same period, with Skoal's market share losses offsetting Copenhagen's gains. Altria is launching new marketing initiatives, like the Original Snuff Shop in Nashville, to revive interest in its snuff products, but it's doubtful that effort will capture many younger customers.

4. Focusing on operating margins

Altria is sticking with its time-tested strategy of hiking prices and cutting costs to offset its declining shipments. As a result, the adjusted OCI (operating companies income) margin of its smokeable products rose 1.8 percentage points annually to 54.4%, while the smokeless unit's OCI margin expanded 4.1 percentage points to 74%.

A woman snaps a cigarette in half.

Image source: Getty Images.

5. A new $1 billion buyback

Altria also regularly boosts its EPS growth with big buybacks. It completed its prior $2 billion buyback program during the second quarter, and launched a fresh $1 billion buyback plan that will last to the end of 2020.

$1 billion only represents about 1% of Altria's current market cap, but steady buybacks will complement its price hikes and cost-cutting initiatives to boost its EPS. That's why it expects its adjusted EPS to still rise 4%-7% for the full year.

6. A murky future for its other products

Altria's "all other" revenue plummeted from $41 million in the first half of 2018 to just $1 million in the first half of 2019. That decline was mainly caused by the shutdown of its MarkTen and Green Smoke e-cigarette brands in late 2018.

Altria discontinued those products to clear the way for its investment in e-cig market leader Juul, its partnership in heated tobacco products with Philip Morris International (NYSE:PM), its pending acquisition of nicotine pouch maker On, and its investment in Canadian cannabis company Cronos Group.

However, the future of many of those products remains murky due to looming FDA regulations. The FDA cleared PMI and Altria's iQOS heated tobacco products in April, but the agency is still tightening its grip on e-cigarette brands like Juul.

Lastly, Altria's oft-overlooked wine business, Ste. Michelle (which is reported as a separate business unit), won't become a growth engine anytime soon. The unit's shipments rose annually during the quarter, but its revenue and adjusted OCI both declined as it faced stiffer competition in the premium market.

A mixed bag and a tough balancing act

Altria looks cheap at 11 times forward earnings, and its forward yield of 6.4% is tempting. However, Altria's core business is still shrinking, its plans to expand beyond tobacco remain stuck in the mud, and it's basically treading water with price hikes, cost-cutting initiatives, and buybacks.

Investors who are interested in tobacco stocks should consider buying Altria's foreign counterpart, Philip Morris International, instead. PMI sells many of the same brands, but it has access to higher-growth overseas markets and generates a higher percentage of its sales from its iQOS products.

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.