Mo Products
Source: Altria

Consistent performance has been one of the long-term traits of Altria Group (NYSE:MO) stock, as the tobacco giant's shares have continued their slow but steady march higher even in the face of challenging conditions throughout the industry. Coming into this morning's third-quarter earnings report, Altria investors wondered whether the company could keep sustaining its profit growth despite challenges in keeping sales up. But Altria's report reassured nervous investors, as the cigarette seller produced better earnings per share figures than they had expected despite a small drop in sales. Let's take a closer look at Altria's most recent earnings to see what we can glean from the company's financials.

Making the most of less
Altria's third-quarter results show just how hard the company has worked to make the most of its opportunities in a tough market environment for tobacco. Revenue for the quarter actually dropped 0.9%, but Altria was able to overcome those headwinds to produce a slight gain in net income. With the benefit of a lower share count due to Altria's stock repurchase program, earnings per share came in at $0.71, up a penny from year-ago levels. Even after adjusting for some one-time items, Altria's earnings per share were better than most investors had expected.

Mo Logo

Source: Altria

Looking at Altria's various segments, similar trends continued that investors have seen in past quarters. Cigarette volumes fell 2.8%, as unit sales of discount cigarettes grew at the expense of Marlboro and other premium cigarette brands. But an increase in pricing for its cigarette products outweighed the unit-sales headwinds, leading to a 1% rise in net revenue and a similar rise in operating company income after allowing for a one-time adjustment in the previous year in connection with disputes with nonparticipating manufacturers. Better prices also boosted margins for the segment, which came in up 2.5 percentage points from 2013 levels.

But the headline numbers for the smokeless products segment showed surprising weakness during the third quarter. Revenue fell almost 4%, and despite higher pricing and lower costs, operating company income for the segment gained just 0.7% on an adjusted basis. Higher promotional spending and a 4.1% drop in shipment volumes for Altria's key Copenhagen and Skoal smokeless brands contributed to the poor results. Yet when you adjust for the fact that the quarter had was shorter by one week for shipment purposes, Altria argues that volume actually grew 2.5% in the third quarter.

Mo Wine

Source: Altria

Finally, Altria's other categories showed considerable strength. The wine segment saw sales jump 3.4%, pushing operating company income higher by more than 10%. Altria also cited the company's investment in SABMiller as providing support for its overall earnings growth.

Staying ahead of the crowd
Even though Altria is dealing with tough conditions in the tobacco market, it's doing a better job than the overall industry in holding onto its customers' loyalty. Market share among its key products remains strong, with its smokeless division seeing total market share of 55.4%, up 0.3 percentage points from year-earlier figures. In the cigarette realm, Marlboro posted a 0.1 point increase to 43.8%, and overall cigarette market share moved up to 50.9% on the strength of gains in the discount arena.

As a result, Altria reiterated its full-year 2014 earnings guidance, with the company projecting earnings of between $2.54 and $2.59 per share. That's perfectly in line with what investors largely expect to see from the tobacco giant, as Altria believes that the fourth quarter will show stronger earnings-per-share growth due to lower effective tax rates and lower costs for its smokeable products segment.

The question that Altria has to answer is how much it can count on ongoing price increases to offset the inexorable decline in cigarette volume that has plagued the industry for years. Some investors hope that the merger of Reynolds American (NYSE:RAI) and Lorillard (NYSE:LO) will improve pricing power among major tobacco companies by limiting competition, especially as the deal will essentially create a duopoly in the U.S. cigarette market.

For now, though, Altria's results show that the tobacco giant's strategy for dealing with adverse conditions in tobacco is still working. As long as Altria maintains its ability to set prices while maintaining its market share, then investors can expect more dividend increases like the 8.3% increase it made early in the quarter.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.