Altria Group Inc. ( MO - Analyst Report ) delivered earnings of 59 cents per share in the second quarter of 2012. The earnings surpassed the Zacks Consensus Estimate of 57 cents by two cents. It also exceeded the prior-year quarter results by 9.3%.

The upswing in earnings came as a result of Altria’s long-term premium brand building initiatives and continued innovation.

Revenue and Margins

Altria’s total revenue went up 9.6% year over year to $6.5 billion in the second quarter 2012. Revenue largely exceeded the Zacks Consensus Estimate of $4.8 billion. Revenues net of excise taxes increased 14.4% to $4.6 billion for the period.

Sales were boosted by brand building initiatives like product developments of popular brands like Marlboro Eighty-Threes, Copenhagen Southern Blend and Black & Mild Summer Blend.

In the quarter, gross profit increased 26.5% to $2.5 billion compared to the prior-year quarter. Operating companies’ income shot up 42.3%year over year to $1.9 billion compared with $1.4 billion in the year-ago period on the back of the ongoing cost reduction program.

Segment Details

Smokeable Products Segment: Net revenue for the Cigarettes segment went up 0.8% year over year to $5.9 billion, primarily due to positive pricing. Revenues net of excise tax went up by 1.4% to $4.0 billion.

Furthermore, the adjusted operating companies’ income increased 2.8% year over year to $1.67 billion, reflecting higher cost management in the company.

Shipment Volume in the quarter went up marginally by 0.1% to 36.6 billion sticks compared to the prior-year quarter, backed by a 0.1% increase in its subsidiary PM USA’s cigarette shipment volume and a 0.6% increase in Middleton’s cigar volume.

Smokeless Products: Net revenue in Smokeless Products increased 5.4% to $426 million, fueled by higher volume and pricing. Revenues net of excise tax went up 5.8% to $399 million.

Furthermore, adjusted operating companies’ income increased 7.1% year over year to $240 million. Smokeless products’ first-quarter shipment volume went up 7.6% to 191.7 milion units on the back of volume growth on Copenhagen and Skoal brands.

Wine: The segment’s net revenue surged 10.3% to $128 million in the quarter, while revenues net of excise tax went up 9.8% year over year to $123 million.

Adjusted operating companies’ income went up 15.8% to $22 million on the back of higher shipment volume, improved premium mix and higher pricing. Wine shipment volume went up 2.1%, primarily due to increased exports.

Financial Services: Reported and adjusted operating income for the financial services segment in the second quarter of 2012 increased $15 million to $42 million.

Cost Savings

In October 2011, Altria initiated a new $1 billion cost reduction program for its tobacco and service company subsidiaries, reflecting Altria's objective to reduce cigarette-related infrastructure ahead of its subsidiary, Philip Morris USA Inc.'s (PM USA) cigarette volume declines.

The new program is expected to deliver $400 million in annualized cost savings by the end of 2013.

Share Repurchase

Altria bought back 2.0 million shares of its common stock priced at $32.37 for a total cost of approximately $66 million during the second quarter.

Dividend

In May 2012, Altria’s board declared a regular quarterly dividend of 41 cents per share. The current annualized dividend rate is $1.64 per common share. As of July 23, 2012, Altria’s annualized dividend yield was 4.6%.

Other Financial Update

At the end of June 30, 2012, cash and cash equivalents were $1.5 billion versus $4.2 billion at the end of March 31, 2012. The company had long term debt of $13.1 billion at the end of June 30, 2012 almost equal to that in the previous quarter.

Business Outlook

Following the second quarter beat, the company raised its fiscal 2012 earnings guidance from a range of$2.17 to $2.23 to a range of $2.19 to $2.23, representing a growth rate of 7% to 9% from $2.05 per share in 2011.The company expects moderate growth of adjusted diluted EPS in the second half of 2012.

Headquartered in Richmond, Virginia, Altria engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. Altria, which competes with Reynolds American Inc. ( RAI - Analyst Report ) and Lorillard, Inc. ( LO - Analyst Report ) , currently has a Zacks #3 Rank, which implies a short-term Hold rating on the stock. For the long-term, we have a Neutral rating on the stock.