Alcon Inc., (ACL)

Q2 2010 Earnings Call

July 27, 2010 8:30 a.m. ET


Kevin Buehler - President and Chief Executive Officer

Richard Croarkin - Senior Vice President and Chief Financial Officer

Dr. Sabri Markabi - Senior Vice President Research and Development and Chief Medical Officer

Doug MacHatton – Vice President, Treasury and Investor and Public Relations


Joanne Wuensch – BMO Capital Markets

Louise Chen – Collins Stewart

Matt Miksic – Piper Jaffray

Kimberly Gailun – JP Morgan

Frank Pinkerton – SunTrust

Valerie Dix – Citi

Lei Hong – Wells Fargo

Josh Jennings – Jefferies & Co

Jim Dawson – Buckingham Research Group



Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Alcon Incorporated earnings conference call for the Q2 of 2010. (Operator instructions.) As a reminder, this conference is being recorded and will be available for replay from 11:30 am on July 27 th, 2010, through 11:59 pm on August 3 rd, 2010.

We will now turn the conference over to Doug MacHatton, Vice President, Treasury and Investor and Public Relations. Please go ahead, sir.

Doug MacHatton

Good morning, and welcome everyone. Presenting today are Kevin Buehler, President and Chief Executive Officer, and Rick Croarkin, Senior Vice President and Chief Financial Officer. Also participating in the Q&A session is Dr. Sabri Markabi, Senior Vice President Research and Development and Chief Medical Officer.

Before we begin I would like to remind you that certain statements that we will make in the presentation may be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and you should not place undue reliance on these forward looking statements in this webcast. We refer you to our full disclaimer regarding these statements which is included in our Q2 earnings press release issued last night, and in our 20-F filed on March 16 th, 2010, with the SEC.

In addition this presentation may also include certain financial measures used to better understand our business, which may not be prepared in accordance with the US Generally Accepted Accounting Principles. These non-GAAP measures are reconciled at the end of this presentation and in associated SEC filings. This conference call and accompanying webcast are being broadcast simultaneously over the internet, with replays available on our website at in the Investors & Media section.

And I’ll now turn the call over to our CEO, Kevin Buehler.

Kevin Buehler

Thanks, Dug. Good morning, everyone, and thank you for joining us on the call today. I’m pleased to report that Alcon again achieved strong operational and financial performance in the quarter. We achieved 11.3% organic growth by leveraging our commercial execution capabilities, broad product portfolio, and global diversification into sustained quarterly growth and leading market share positions.

Reported sales in the quarter rose 12.5% to $1.9 billion USD including 80 basis points of positive currency impact, and 40 basis points from acquisitions. The strong top line performance, disciplined approach to spending, and a favorable impact on gross margins from foreign currency allowed us to achieve operating income growth of almost 20% and net income growth of almost 16%, both on an adjusted basis.

I am especially pleased that we achieved these solid financial results while increasing our investment in R&D by over 17% versus Q2, 2009, and absorbing the impact of a higher tax rate in the quarter.

Our strong performance in the Q2 builds upon the momentum that was first set into motion last year. Since emerging from the challenging economic environment in mid-2009, we have posted very solid organic growth. The 10.5% organic growth rate realized in the first half of 2010 is certainly a positive trend. At the same time, it’s important to recall that it compares against a relatively weak market environment in the first half of 2009. As we move into the back half of the year we will have higher comparable sales performance that reflected a more recovered market environment. As you recall from our last earnings call and previous guidance, we expected growth to be higher in the first half of the year primarily for this reason.

The financial results through the first half of 2010 and the strong underlying fundamentals of our business should allow us to deliver full-year organic sales growth in the high single-digit range. Rick will provide more detail on our increased guidance and outlook for the balance of 2010 in a few moments.

Our ability to deliver strong and consistent organic growth is attributable to the value delivered by our broad ophthalmic product portfolio and our global presence. With operations in more than 75 local affiliates and sales in more than 180 countries, Alcon has an unrivaled global reach in eye care. Our largest market, the U.S., had an exceptionally strong quarter with sales growth of 12.7% including a 90 basis point contribution from acquisitions. This performance was driven by contributions from all product lines, but especially pharmaceutical products with strong sales growth in glaucoma, flora quinolone anti-infective, non steroidal anti inflammatories, and allergy, due to a more severe spring season.

Sales in international markets rose 10.8% on an organic basis in the quarter. Within the international markets, the organic growth contribution was relatively consistent across the three major product lines and all major geographical areas with the exception of Japan, where the strong pharmaceutical product sales were partially offset by softness in surgical and consumer. Emerging markets were once again our fastest-growing geographic category, with organic growth of 24.2%, and now account for over 19% of total sales.

The BRIC nations – Brazil, Russia, India, and China – continued to fuel our international growth, rising 28.9% organically in the Q2 and 25.8% organically year-to-date. India and China have been particularly strong, growing approximately 63% and 33% year-to-date on an organic basis respectively. Alcon has a number of other drivers in the emerging and BRIC markets, including glaucoma pharmaceutical and cataract surgical products.

As you can see these product areas are delivering accelerated growth today as we increase the level of product promotion and surgeon training into these important growth markets. We are in the very early stages of development in these markets, and the high prevalence in unmet medical needs in the ophthalmic area will provide accelerated growth for years to come.

The benefit of our diversified portfolio of products across our pharmaceutical, surgical, and consumer product lines is evident in this slide. Pharmaceutical products once again led our global growth, delivering a 16.5% organic increase in the quarter. This performance can be attributed to global market share expansion, strong sales of our glaucoma products, the improved US pharmaceutical market environment, and the lift provided by a relatively more severe allergy season in the U.S.

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