When Altria (MO -1.14%) raised its cigarette prices in June just two months after having raised them in April, analysts cheered the bullish signal from the cigarette giant because it was flexing its pricing power. A more sober view of the increase saw it as actually a warning sign that tobacco sales were going to be worse than expected and that Altria needed the extra money to maintain profits.

That seems to be exactly what happened in the second quarter, since Altria reported revenue of $5.19 billion, beating Wall Street expectations by $110 million and matching earnings projections of $1.10 per share, a 9% increase over the year-ago figure.

Hands breaking a cigarette in half.

Image source: Getty Images.

People giving up smoking faster

Had Altria not raised prices a second time, it would not have been able to post those numbers, because cigarette shipments tumbled 7% compared to a 6% decline in the industry. This caused the tobacco giant to revise its full-year shipment volume to a decline of 5% to 6% (as smokers switch to electronic cigarettes) compared to its previous outlook of 3.5% to 5%.

The industry is declining quickly, and Altria is trying to bolster its bottom line on the backs of smokers who remain -- hardly a bullish sentiment, even if it can raise prices almost at will and still balance its books. The market seemed to agree and sent the cigarette maker's stock lower in the aftermath.

However, investors might be a bit shortsighted, since Altria's stock trades at just 14 times trailing earnings and 10 times estimates, while its dividend currently yields 6.8%. The cigarette giant also announced a new $1 billion buyback program to replace the $2 billion share repurchase authorization it just completed, which, along with its cost-cutting measures, should continue elevating earnings for the foreseeable future.

The e-cig opportunity

It's no secret the cigarette industry is in decline, but Altria is arguably better prepared than its rivals for the smoke-free future due to its investments in cigarette alternatives.

High on that list is its $12.8 billion investment in Juul Labs, whose JUUL e-cig remains far and away the industry leader. Juul Labs is working on submitting its premarket tobacco application to the Food and Drug Administration by the new May 2020 deadline.

Yet legitimate concerns remain about whether Juul will pass muster with the regulatory agency considering teen usage statistics, something even Altria doesn't think will see any declines when new surveys on usage are released this fall, and it admits they may even go up despite Juul's efforts at reducing access. There ought to be a significant growth opportunity overseas for Juul, which it is only just now really tapping into, but Altria says it's "too soon to make a judgment on the progress they're making overseas."

Smokeless tobacco can be big too

Altria is also uniquely positioned to benefit from Philip Morris International (PM -1.13%) receiving FDA approval for its heat-not-burn IQOS device, which Altria will be marketing and selling under its Marlboro brand. Altria is testing it in Atlanta before rolling it out nationally, so between JUUL and IQOS, Altria has the potential to end up with the two most popular e-cig devices on the market.

It has also invested more heavily in the smokeless tobacco market with its acquisition of the on! brand of oral nicotine pouches, a fast-growing segment of the snus and snuff market. Altria's Copenhagen brand is already the leading smokeless tobacco brand on the market, though its increased sales this quarter couldn't overcome the decline in Skoal.

Altria has also taken a 45% stake in marijuana producer Cronos Group as a further hedge against declining rates of smokers.

The future is still lit

Altria maintains that its contributions from these next-generation products should make up for the decline it's seeing in the traditional combustible cigarette market. There are certainly risks to the strategy -- the FDA, for example, may not sign off on its investment in Juul Labs -- but overall, the tobacco giant is setting itself up well for a future in which cigarettes are just a thing of the past.