It might seem that a tobacco company such as Carolina Group (NYSE:CG) -- which does not have the same degree of international exposure as companies such as Altria (NYSE:MO), British American Tobacco (NYSE:BTI), and Imperial Tobacco (NYSE:ITY) -- would be hurting, given the contraction of the domestic cigarette market. However, Carolina Group followed in step with Reynolds American (NYSE:RAI) and Altria in reporting price increases large enough to more than offset volume declines.

The company reported an increase in EPS of 14.5% on a 5.9% rise in net sales versus the year-ago quarter. Aside from the price increases that Carolina Group implemented in December 2006, the cigarette maker benefited from lower sales promotion expenses. Additional positive trends for the company included 7.4% improvement in total volume shipped for the company's value brands as well as slightly higher shipment volume to Puerto Rico and U.S. territories.

Carolina Group's dividend yield of 2.2% is significantly lower than that of Altria's 4.2% and Reynolds American's 5.6%. On the flip side, Carolina Group has handily outperformed both of these company's from a price appreciation standpoint in churning out a 32% year-to-date return. It might be tough sledding for these companies in terms of growing their domestic cigarette sales going forward, but each has demonstrated that it wields the pricing power to offset any losses from this trend. I don't see any reason to sell shares of Carolina Group at this point.

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.