You've got to hand it to Altria (NYSE:MO).

Between splitting off its global growth engine Philip Morris International (NYSE:PM), growing excise taxes on cigarettes, and integrating newly acquired snuff and wine producer UST into the mix, Altria had plenty of excuses to deliver weak quarterly earnings. Instead, Altria exceeded analysts’ expectations with an EPS of $0.49 before one-time items (versus adjusted estimates of $0.47), and revised its ongoing 2009 forecast upward by $0.02.

For the quarter, Altria delivered EPS growth of 8.9%, with the help of tight cost control. Cost of sales actually declined by 1.4% on the quarter, even as selling, general, and administrative expenses increased by 19.4% with the integration of UST. Altria is forecasting that it will deliver a total of $1.5 billion in cost reduction by 2011 (vs. 2006), including savings achieved by moving its headquarters from pricey New York to Richmond, Virginia.

Altria's not out of the woods here by any stretch of the imagination: Following its purchase of UST, Altria's long-term debt expanded from $101 million in the 2008 third quarter to more than $11 billion as of today.

Overall, cigarette volume dropped by 6.8% for the quarter, with Altria suffering a 1.5% decline in market share in the segment. Volume for the flagship brand, Marlboro, decreased by 5.7%, with a 0.6% loss in share points. These slides were prompted primarily by promotional activity in April and May that increased prices relative to discount competitors. That pricing gap, says Altria, declined as the quarter progressed, and Marlboro gained share throughout June.

Net revenue increased by 32.9% -- which sounds hot -- but this figure includes a 143% increase in excise tax, from $875 million to $2.13 billion. Excluding the excise-tax revenue, actual product revenue increased by just 9.9%. Operating income increased by 25%, albeit with the addition of UST's business.

While competitors Reynolds American (NYSE:RAI), Lorillard (NYSE:LO), British American Tobacco (NYSE:BTI) and Vector Group (NYSE:VGR) opposed FDA regulation of tobacco products, Altria actually supported this legislation. On the surface, you would think such regulation would continue to dig into Altria's position as market leader. But considering the massive excise-tax increases, the decline in Altria's cigarette volume shows that tobacco demand may be fairly inelastic after all. At a P/E of 11.8 and annual yield of 7.4%, Altria certainly could be a sizzling long-term investment if it can continue to manage costs while paying attention to increases in inventory and long-term debt.

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Fool contributor Colleen Paulson does not hold positions in any of the stocks mentioned above. The Fool's disclosure policy never fizzles out.