If you recall, I wasn't exactly thrilled with Altria's (NYS: MO) earnings report last quarter, and I'm even less impressed following the company's third-quarter report yesterday. To me, it appears that Altria is content in giving up on growth and is simply going to dig its heels in and make its last stand as a dividend-income provider in order to keep shareholders happy.

For the quarter, Altria reported revenue of $4.33 billion, excluding excise taxes, and net income of $0.57 per share, more than 3% higher than the year-ago period. While these figures might seem tame, it was the company's outlook and the quality of its quarterly earnings that have me running in the other direction screaming, "Fire!"

Even going into this quarter with the understanding that cigarette shipment volume would be down based on the company's forewarning of this last quarter, the magnitude of the drop was much more than anyone anticipated. Cigarette sales dropped a whopping 9% for the quarter with its Marlboro brand leading the charge lower. Only Altria's discount brands saw a rise in shipment volume -- but that made little difference with discount brands only making up about 7% of all volume.

More concerning is the loss of market share for the company's premium brand, Marlboro. Economic uncertainty, high unemployment levels, and increased U.S. government programs designed to heighten awareness about the dangers of smoking are all working against Altria in a big way. Although Altria still controls around 50% of U.S. market share, it's disconcerting that its premium and highest-margin Marlboro brand lost so much market share over the year-ago period.

Not everything is a complete loss, however, as the company raised its dividend by 7.9% in August and completed a $1 billion share buyback program. The company also affirmed that it would seek another $1 billion in share buybacks prior to the end of 2012. But is Altria good for anything other than dividend income? I unfortunately don't think so.

Tobacco producers with foreign exposure including Philip Morris International (NYS: PM) , British American Tobacco (ASE: BTI) , and Universal (NYS: UVV) are able to escape (to some extent) the stringent anti-smoking laws within the U.S. and offer the stability of diversification across multiple geographic regions. Altria, along with Lorillard (NYS: LO) , Vector Group (NYS: VGR) , and Reynolds American (NYS: RAI) , are fighting a losing battle against the U.S. government for a shrinking piece of the U.S. tobacco market.

Looking ahead, Altria anticipates laying off about 15% of its workforce in response to declining sales and is taking an impairment charge of $75 million in the fourth quarter. Investors may have reached the butt of this investment, and now may be the opportune time to toss this one to the curb.

What do you think? Are Altria's best days behind it or are pessimists like me blowing smoke? Share your thoughts in the comments section below and consider adding Altria to your free and personalized watchlist to keep up on the latest news with the company. Also, I invite you to get your free copy of The Motley Fool's latest report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." Why be a slave to declining sales when you can own these 11 companies instead?

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. The only thing he has been known to smoke is his tires. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Altria and Philip Morris International. Motley Fool newsletter services have recommended buying shares of Philip Morris International and creating a bear put ladder position in Lorillard. 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.

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GARY

I wish I was smart enough to figure out why a 6% return on my money is something I should avoid.

October 29 2011 at 6:22 AM Report abuse +1 rate up rate down Reply
1 reply to GARY's comment
hgeorgech

exactly!

October 30 2011 at 2:01 PM Report abuse +1 rate up rate down Reply
Joe & Maria

It is the height of hypocracy to deem tobacco so terribly damaging to our health and yet allow it to continue being sold because we've become so dependent upon the tax revenue collected from its sale. The truth is smoking in excess is damaging to our health just as anything else done in excess would be equally hazzardous. Indulging in excess, whether it be liquor, ice cream, caffeined beverages, gluttony, yes, even strenuous excercise can be detrimental to our health, yet little or no official action is taken to curb these practices. Why single out tobacco? Why selective taxes and penalties directed against a legitimate product? Because the charade has proven enormously profitable for federal and state governments and for the lawyers who have collecfed hundereds of millions in legal fees suing these companies. Why the tobacco industry has never vociferously raised the objection of selective enforcement remains a great mystery. I've raised it with Altria and never got a straight answer. I'm still waiting for it to be revealed that the tobacco industry is only waiting for the right opportunity to reveal their strategy. But, I'm not holding my breath.

October 28 2011 at 7:22 PM Report abuse rate up rate down Reply