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Source: Nikita2706, Wikimedia Commons.

Long-time investors in Altria Group (NYSE:MO) have experienced firsthand the amazing power of compounding returns, as the tobacco giant has put in the best performance of any S&P 500 stock over the past 50 years. Throughout any number of crises of confidence, ranging from heightened health concerns to major lawsuits, Altria has managed not only to survive but to keep its business moving forward, rewarding investors with growing dividends, lucrative spinoffs, and share-price appreciation. Yet as Altria's most recent earnings report shows, the company's success hasn't come without some setbacks, and some investors are less certain that Altria will be able to duplicate its past success over the next half-century. Let's take a closer look at Altria's most recent earnings to see what we can glean from the company's financials.

Sluggish overall results hide some of Altria's successes

Altria's headline financial numbers weren't the most impressive, reflecting some of the challenges that the company faces. Net revenue fell 0.8% from the year-ago quarter, and although reduced taxes lifted gross profits, net income eased downward as well. A reduction in share count actually lifted earnings per share from year-ago levels, but even those gains amounted to less than a penny.

Mo Logo
Source: Altria Group.

Yet beneath these numbers, you can find evidence of the effort that Altria has spent trying to boost its business prospects. Within the cigarette and other smokeable products segment, operating company income rose 3.7%, and operating margins climbed by more than a full percentage point. Despite a 5% drop in shipment volumes, higher prices for Altria's products more than made up for the resulting profit hit. Moreover, even with the volume declines, the key Marlboro brand gained retail market share to reach 44%, and Altria retained a majority share of the overall cigarette market when you add in other premium and discount brands. That marks an especially important milestone given the potential for increased competition resulting from the planned Reynolds American (NYSE:RAI) merger with Lorillard (NYSE:LO).

Smokeless products also showed the benefits of greater efficiency. Revenue in the segment climbed just 1.3%, but a boost of more than three percentage points in margins helped lift adjusted operating company income by 5.6%. The Copenhagen brand led overall volume higher for the category, and Altria controls more than half of the smokeless industry in the U.S. as well.

On the guidance front, though, Altria was only able to narrow its previous range for earnings per share. That kept investors more cautious about the company's future, despite the fact that on an adjusted base, the new narrower range is at the high end of the previously announced guidance.

Mo Products
Source: Altria Group.

Bringing on the shareholder love

Still, Altria continues to give shareholders what they want. Two weeks ago, Altria also announced a boost of more than 8% to its dividend. The new $0.52 per share quarterly payout brings the stock's yield back up to almost 5% at current levels.

The company also announced in its earnings report a new $1 billion share repurchase program to occur between now and the end of 2015, which should continue to drive share counts lower. That in turn should help Altria produce more earnings-per-share growth even if overall net income doesn't produce optimal results.

Can Altria keep growing?

From a longer-term perspective, though, Altria earnings have bounced around a lot, despite the general upward track. As you can see below, quarterly earnings move from gains to declines regularly, showing the volatility in the market Altria faces.

MO EPS Diluted (Annual) Chart

MO EPS Diluted (Annual) data by YCharts

Financial engineering aside, long-term trends toward falling cigarette volumes have hurt the entire tobacco industry. As the Centers for Disease Control and Prevention noted last year, the percentage of adults who smoke has been cut in half over the past 50 years, and the goal among health regulators is to cut another one-third off that number by 2020. That has the potential to make earnings growth more difficult to achieve even if share counts fall further.

Mo Markten

Source: MarkTen.

That makes non-tobacco alternatives all the more important, and Altria's MarkTen e-cigarette could play a vital role in the company's growth. Altria said that the brand now appears in 60,000 stores. That's less than half of the penetration of Lorillard's blu eCigs brand, but with Lorillard expected to divest itself of blu in its Reynolds merger, Altria could have a chance to catch up against what will become its major domestic rival.

Overall, Altria has done well in dealing with the regulatory and consumer-health obstacles that have jeopardized its long-term volume growth for decades. By building up a stable of valuable brands, not just in cigarettes, but also in smokeless and the innovative electronic cigarette realm, Altria has put itself in the strongest position possible to take advantage of its best opportunities supporting potential future growth.

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.