Philip Morris International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Philip Morris International (PM)

Q4 2011 Earnings Call

February 09, 2012 1:00 pm ET

Executives

Nicholas Rolli - Vice President of Investor Relations & Financial Communications

Louis C. Camilleri - Executive Chairman and Chief Executive Officer

Analysts

David J. Adelman - Morgan Stanley, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Erik A. Bloomquist - Berenberg Bank, Research Division

Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

Michael Lavery - Credit Agricole Securities (USA) Inc., Research Division

Rogerio Fujimori - Crédit Suisse AG, Research Division

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Christopher Wickham - Oriel Securities Ltd., Research Division

Presentation

Operator

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Good day, and welcome to the Philip Morris International Fourth Quarter 2011 Year-End Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Philip Morris International management and the question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

Nicholas Rolli

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2011 full year and fourth quarter results. You may access the release on our website at www.pmi.com.

During our call this afternoon, we'll be talking about results for the full year or fourth quarter 2011 and comparing them with the same period in 2010, unless otherwise stated. References to volumes are for PMI shipments. Industry volume and market shares are the latest data available from a number of sources. Organic volume refers to volume excluding acquisitions, which for the purposes of this presentation also includes our business combination with Fortune Tobacco Corporation in the Philippines.

Net revenues exclude excise taxes. Operating company's income or OCI is defined as operating income before general corporate expenses and the amortization of intangibles. You'll find data tables showing how we made adjustments to net revenues and OCI for currency, acquisitions, asset impairment, exit and other costs. Free cash flow calculations and adjustments to earnings per share or EPS, as well as reconciliations to U.S. GAAP measures at the end of today's webcast slides, which are posted on our website.

Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections.

It's now my pleasure to introduce Louis Camilleri, Chairman and Chief Executive Officer; and Hermann Waldemer, Chief Financial Officer, who will join Louis for the question-and-answer period.

Louis?

Louis C. Camilleri

Thank you, Nick. And good afternoon, ladies and gentlemen. 2011 was a superb year for Philip Morris International. We returned to organic volume growth, thanks notably to our strong performance in Indonesia and in Japan, where we benefited from our excellent execution in response to the tragic events there last March.

We achieved global share growth for the fourth consecutive year, driven by our superior brand portfolio. Our solid volume performance, strong pricing and significant productivity savings led to record profitability. Finally and perhaps most importantly, we continued to generate strong cash flow, which enabled us to provide generous returns to our shareholders.

In the fourth quarter of 2011, we increased net revenues and adjusted operating company's income or OCI, excluding currency and acquisitions, by 8.2% and 7% respectively and grew our adjusted diluted earnings per share, excluding currency, by 13.4%. The growth in adjusted OCI, excluding currency and acquisitions, was driven by higher pricing, particularly in the EEMA and EU regions and favorable volume mix, principally in Asia, partly offset by higher costs reflecting increased marketing investment in several important markets, such as Germany, Japan and Russia.

In the Asia region, adjusted OCI, excluding currency and acquisitions, was up by an impressive 22.6% in the quarter, driven by strong growth in Australia, Indonesia, Japan, Korea and the Philippines, and by a robust 10.5% on the same basis in the EEMA region. These increases more than compensated for declines in our 2 other regions. In the EU region, adjusted OCI, excluding currency, was down 4.3%, adversely impacted by unfavorable volume mix, notably in Italy and Spain.

In addition, we increased our marketing investments substantially in the quarter behind a new Marlboro marketing campaign in Germany, Marlboro Beyond capsule product launches in France and Switzerland and the launch of Marlboro Core Flavor in Spain. In the Latin America and Canada region, unfavorable volume mix primarily volume in Mexico and higher expenditures contributed to a 6.3% decline in the quarter in adjusted OCI, excluding currency and acquisitions. On a full year basis, net revenues and adjusted OCI, excluding currency and acquisitions, rose by 9.2% and 14% respectively and the growth of our adjusted diluted earnings per share, excluding currency was an outstanding 21.2%.

In recent months the euro has weakened, mainly due to the sovereign debt issues in Europe and several emerging market currencies have also depreciated against the U.S. dollar. At prevailing exchange rates, we forecast a currency headwind of approximately $0.10 per share this year with the largest impact expected to come in the second and third quarters. I would like to stress that this would simply bring us back about halfway to the currency levels generally prevalent in 2010 as we benefited from a $0.19 per share currency favorability in 2011.

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