Tobacco stocks are often considered recession-resistant because people tend to still smoke when the economy sours. But as Altria's (MO -1.00%) third-quarter results show, not even cigarette companies are immune from the impact of stagflation.

The highest inflation rate in 40 years coupled with rising interest rates, still-elevated gas prices, and an uneven economy is proving even too much for smokers as Altria missed analyst expectations for revenue and profits for the period. It wasn't a terrible result, but it's clear the challenging environment is having an impact.

Cigarettes laid out like a $50 bill.

Image source: Getty Images.

Inflation ruins everything

The tobacco stock said third-quarter revenue of $6.55 billion was down 3.5% from the year-ago period, though that was mostly because of the sale of its Ste. Michelle wine business last year and not the macroeconomic or geopolitical events unfolding around the world. 

That's not to say Altria's customers aren't being affected, because they're not only feeling the full weight of those issues on their disposable income, but it's ultimately affecting their purchasing behaviors. Inflation plays a big role in how much they are willing or able to spend overall on tobacco products, and whether they are buying premium and discount brands or taking up smoke-free products.

Altria's traditional cigarette business was hurt most as net revenue fell 1.6% in the quarter. But when you adjust this for the excise taxes on the products, revenue actually inched 0.4% higher. Even so, Altria saw lower shipment volumes for the period, which tumbled 8% on an adjusted basis. It still lost market share despite boosting its promotional activities. It was able to offset some of those factors by raising prices.

While its Marlboro brand saw its dominating cigarette market share slip 0.4 points to 42.6%, in the premium category, Marlboro's share exhibited strength and grew 0.7 points from last year to 58.4% and was up sequentially as well.

A third bite at the e-cig apple

Although Altria is for all intents and purposes without a viable electronic cigarette on the market due to its breakup with Philip Morris International and the withering decline of Juul e-cigs, the rest of its smoke-free portfolio is doing slightly better.

Adjusted revenue in the oral tobacco segment rose 7.7% with its on! brand of nicotine pouches representing a greater percentage of shipment volumes relative to the moist smokeless tobacco category. But adjusted shipments overall were down 2% year over year.

Person exhaling vapor cloud from electronic cigarette.

Image source: Getty Images.

However, Altria did announce it would be reentering the e-cig market by partnering with Japan Tobacco to bring two new products to market. The problem is that their applications won't be delivered to the Food and Drug Administration for marketing approval until 2024 and 2025, respectively. That's a long time to be out of the market, allowing British American Tobacco to further grow its leading market share for its Vuse brand of e-cigs.

The two new devices will be heated tobacco devices. One will be of Altria's own design, and Altria will apply for pre-market FDA approval for it in 2024, just about when its rights to Philip Morris' IQOS expire. The other device will be Japan Tobacco's Ploom X brand that has already been introduced into four foreign markets.

It's a hopeful development and Altria will surely keep Juul on life support until then. But having exercised the termination of its non-compete clause and just about given up all oversight over Juul (and having written down virtually the entirety of its investment in the e-cig maker), it's clear Altria no longer sees that as a viable business.

A dividend fallback play

As an Altria share owner, I'd like to have seen a faster return to the e-cig market, but its traditional cigarette business is still holding up despite the challenges. That should easily allow the tobacco giant to see its way through until it can begin rolling out its own devices.

Otherwise, Altria's financials remain solid, even if profits slipped this quarter. It recently raised its dividend for the 57th time in 53 years, keeping it a Dividend King, and with the payout yielding 8.3% annually, I'm willing to bide my time until Altria gets back in the e-cig game.