Philip Morris International (PM)

Q3 2011 Earnings Call

October 20, 2011 9:00 am ET


Nicholas Rolli - Vice President of Investor Relations & Financial Communications

Hermann G. Waldemer - Chief Financial Officer and Executive Vice President


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

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

David J. Adelman - Morgan Stanley, Research Division

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

Vivien Azer - Citigroup Inc, Research Division

Erik A. Bloomquist - Berenberg Bank, Research Division

Jonathan Fell - Deutsche Bank AG, Research Division

Unknown Analyst -

Karen Lamark - Federated Investors

David Hayes - Nomura Securities Co. Ltd., Research Division

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division



Good day, and welcome to the Philip Morris International Third Quarter 2011 Earnings Conference Call. [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 news release containing detailed information on our 2011 third quarter results. You may access the release on our website at

During our call today, we will be talking about results for the third 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 internal and external sources. Organic volume refers to volume excluding acquisitions. Net revenues exclude excise taxes. Operating companies 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 adjustment 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, and I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and news 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 Hermann Waldemer, our Chief Financial Officer. Hermann?

Hermann G. Waldemer

Welcome, ladies and gentlemen. I'm extremely pleased to report that we achieved outstanding financial results in the third quarter. Net revenues, excluding currency and acquisitions, increased by 15.7%, and adjusted OCI, excluding currency and acquisitions, was 23.7% higher. Finally, adjusted diluted EPS reached $1.37 per share and grew by a remarkable 33%, excluding currency.

While these results were boosted by relatively easy year-on-year comparisons, in the third quarter, we comfortably surpassed all our mid- to long-term currency neutral targets even excluding the whole of our business in Japan. And year-to-date, we are well within these targets.

Our business outlook has further improved since July, fully compensating recent se unfavorable currency movements. This has enabled us to narrow our 2011 reported diluted EPS guidance to the upper half of our previous range, namely to $4.75 to $4.80. Compared to our adjusted diluted EPS of $3.87 in 2010, this translates into an improved growth rate, excluding currency, of approximately 17.5% to 19%, well above our mid- to long-term currency neutral growth target and approximately 22.5% to 24% at prevailing exchange rates.

Our third quarter volume was exceptionally strong. We achieved an organic cigarette volume growth of 4.4%, led by the Asia region, with an increase of 12.6% and EEMA with 4.8%. On a year-to-date September basis, we have achieved organic volume growth of 0.5%.

While there has been a lot of focus on Japan volume, I would like to emphasize that we achieved organic volume growth of 2.3%, excluding Japan, in the third quarter. Furthermore, on a year-to-date basis, the combined increase in our volume in Indonesia and Korea was nearly double that of Japan.

Our entire brand portfolio has performed very well. Every single one of our top 10 brands achieved volume growth both in the third quarter and year to date, be they international brands such as Marlboro, L&M and Parliament or leading local brands such as Fortune in the Philippines and Sampoerna A in Indonesia. I would like to highlight the remarkable performance of Parliament, whose volume was up 16.2% in the quarter and 9.9% year-to-date.

We are particularly pleased by the improved performance of Marlboro, which is gaining share on a global basis, excluding China and the U.S. In the quarter, Marlboro volumes increased at double-digit rates in both the Asia and the EEMA regions. On a year-to-date basis, Marlboro has gained 0.3 and 0.5 share points, respectively, in these regions.

Marlboro's slightly share decline in the EU region reflects the pressure on the premium segments from continued economic difficulties in parts of Southern Europe as well as a moderate share loss in Germany. However, the brand gained share or was notably stable in Belgium, Czech Republic, France, Hungary, the Netherlands and Poland.

The share decline in the Latin America and Canada region marks the superb momentum of Marlboro across the region, and is the result of the over-indexation of Marlboro in Mexico, where industry volume has declined at a double-digit rate since the large tax-driven price increases in December last year. This very good performance is evidenced by significant share gains in the 4 key Latin American markets: Argentina, Brazil, Colombia and Mexico.

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