Philip Morris International Inc. (PM)
Q3 2010 Earnings Call Transcript
October 21, 2010 9:00 am ET
Nick Rolli – VP, IR and Financial Communications
Hermann Waldemer – CFO
David Adelman – Morgan Stanley
Judy Hong – Goldman Sachs
Adam Spielman – Citigroup
Christine Farkas – Bank of America/Merrill Lynch
Jon Fell – Deutsche Bank
Ann Gurkin – Davenport
Jon Leinster – UBS
Rogerio Fujimori – Credit Suisse
David Hayes – Nomura
Priya Ohri-Gupta – Barclays Capital
Previous Statements by PM
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» Philip Morris International, Inc. Q3 2009 Earnings Call Transcript
I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.
Welcome. Thank you for joining us. Earlier today, we issued a news release containing detailed information on our 2010 third-quarter results. You may access the release on our website at www.pmi.com.
During our call today, we will be talking about results in the third quarter of 2010 and comparing them with the same period in 2009 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. Net revenue data excludes excise taxes. Acquisitions, for the purposes of this presentation, also include our business combination with Fortune Tobacco Corporation in the Philippines. Organic volume refers to volume excluding acquisitions.
You will find data tables showing how we made adjustments to net revenues and operating companies income or 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, 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, Chief Financial Officer. Hermann?
Thank you, Nick, and welcome ladies and gentlemen. As anticipated, our third quarter results were adversely impacted by various timing issues, in particular relating to Japan. More than half our organic volume decline in the quarter was attributable to the payback for the previously disclosed 3.4 billion unit build-up of stocks at our distributor in Japan during the second quarter this year. The lower sales to Japan also drove an unfavorable geographic mix in the quarter.
We do, however, remain very competitive in this important market, where Marlboro is growing share behind innovative line extensions, such as Marlboro Black Menthol and Marlboro Ice Blast, which reached a combined market share of 2% in the quarter.
We continued to face a difficult environment in both Greece and Turkey, resulting from the significant tax increases that occurred earlier this year. Industry volume in these markets was down by 8% and 6%, respectively, in the third quarter, and the widening of price gaps has led to consumer downtrading and an unfavorable product mix.
These three issues masked an otherwise strong underlying business performance. I would like to mention in particular the good results of Marlboro, driven by the new architecture and innovative line extensions. The market share of Marlboro was higher or stable in the third quarter across all four of our regions.
A notable highlight of the quarter was our continued strong cash flow performance, with operating cash flow increasing by more than 30% in the third quarter. This allowed us to accelerate the implementation of our share repurchase program and to increase our dividend by 10.3% in September.
Indeed the strength of our underlying business, along with more favorable exchange rates and a lower tax rate, has led us to raise and narrow our reported diluted EPS guidance for 2010 to a range of $3.90 to $3.95. This represents a reported diluted EPS growth rate of approximately 20% to 22%, compared to the $3.24 achieved last year. Excluding currency, the growth rate in our guidance is now approximately 16% to 18% compared to 14% to 17% projected previously.
Our cigarette volume in the quarter increased by 4.5% to 229.2 billion units, driven by our successful business combination with Fortune Tobacco in the Philippines. Excluding acquisitions, our volume declined by 2.9%, or 6.3 billion units.
In addition to Japan, Ukraine contributed 2.6 billion units to this decline, reflecting both the timing of shipments and market contraction following a series of tax-driven price increases. Our volume was also unfavorably influenced by lower industry volumes in such markets as Greece, Poland, Spain, and Turkey.
On a year-to-date basis, our organic volume was down by 1.6% or 10.5 billion units. The decline was driven in particular by Turkey and Ukraine, whose combined volume was down 10.1 billion units, as well as by Greece and Spain. Our volume in a number of important emerging markets, including Algeria, Argentina, Egypt, Indonesia, Korea, Mexico, and Russia has, however, increased this year.
Our net revenues, excluding currency and acquisitions, were down slightly in the quarter, impacted in particular by the timing of shipments to Japan, the need to partially absorb taxes and lower volumes in Greece, lower volumes and an unfavorable mix in Turkey, and the lapping of last year’s price increase in Germany. On a year-to-date basis, our net revenues, excluding currency and acquisitions, are up 3.6%.