One on One With Hank McKinnell, Chairman & CEO of Pfizer
Wednesday, June 07, 2006
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SUSIE GHARIB: America`s business leaders expect the economy to stay strong for the rest of the year, despite high oil prices and rising interest rates. A new survey by the Business Roundtable says its CEO members expect the economy to grow by 3.4 percent in 2006. The survey also says 83 percent of the CEOs expect their sales to increase this year, 48 percent plan to increase capital spending this year and 41 percent will hire more workers. Still, the projections are down slightly from an earlier forecast. Earlier today, I talked with Hank McKinnell, chairman of the Business Roundtable and Pfizer and asked him why CEOs are less bullish than previous surveys.
HANK MCKINNELL, CHAIRMAN & CEO, PFIZER: The decline is probably not very meaningful. This quarter`s diffusion index, future economic growth, is the third highest we`ve ever seen. CEOs of America`s largest companies are expecting 3.4 percent growth this year, which is both strong and sustainable.
GHARIB: Addressing that 3.4 percent economic growth, as you know, this week, Fed Chairman Ben Bernanke has been talking very tough about inflation and the implication is that interest rates may be rising. Will that impact your economic growth outlook, do you think?
McKINNELL: Well, in spite of rising interest rates and the higher cost of energy, which is probably a bigger factor, America`s CEOs remain optimistic about the balance of this year.
GHARIB: What about CEOs` views on inflation? I know it wasn`t a question in your survey, but what are you hearing from them about the impact of inflation and higher interest rates possibly on their businesses?
McKINNELL: We`re certainly seeing the impact of higher energy prices, particularly over the last six or seven months. That`s a major determinant of cost pressure on companies, not labor costs, importantly. But there`s little or no opportunity to pass that along to the consumer in this very competitive marketplace, so we see cost pressures but aren`t particularly concerned about inflation, at least in the near term.
GHARIB: What about in terms of spending and in terms of hiring? How do you think that these cost pressures, interest rate increases will impact plans by CEOs in terms of spending and hiring?
McKINNELL: Well, this is the third year of a very strong economic expansion. You would expect capital spending to be leading at this point, and 48 percent of our CEOs expect capital spending to increase. 48 percent expect it to remain the same so that is a very strong number. On hiring, 40 percent plan to increase hiring, 40 percent plan for it to remain the same, a little less bullish, maybe, than a quarter ago but still predicting very strong job creation in the American economy.
GHARIB: How about at Pfizer? What is, from your perspective, how is this new economic environment impacting your business?
McKINNELL: Our business is primarily driven by product cycles, which are exceptionally long. You cannot look at the value of a research-based company like Pfizer through quarterly results or even annual results. Every new invention this year will not come to market for 12 to 15 years, and we are in a very important part of that cycle. We launched the most important new cancer medicine this year, earlier this year. And in the next six weeks, we will be launching an important new medicine for serious fungal infections, the first targeted treatment to help smokers stop smoking, and the first advance in insulin therapy in over 80 years. It`s a very good time for Pfizer.
GHARIB: There`s been a lot of speculation that Pfizer has found a buyer for its consumer unit, your franchise of Sudafed, Listerine and other products. How close are you to a deal?
McKINNELL: We`re going down two tracks. One is taking this very strong business, the second largest consumer health care business in the world, growing at twice the market rate, to spin that off as a public company, which is a very attractive alternative. We`ve also received a number of very attractive offers from a number of other companies. The process is very competitive and we do expect to conclude this sometime during the third quarter, that all options look very attractive.
GHARIB: Some of the analysts I`ve spoken to believe that Pfizer could get anywhere between $12 to $14 billion from this transaction. Put that on top of all the cash that Pfizer already has on hand. What are you going to do with that money?
McKINNELL: We do produce cash flow of about $16 billion each year and that is rising over the next couple of years. We use that for capital expenditure and dividends, which we increased 26 percent early this year. Additional funding will go towards the acquisition of intellectual property and new products, probably small acquisition, and the return of additional capital to shareholders. It`s a very attractive time in terms of cash flow for Pfizer.
GHARIB: Can we expect a major acquisition from Pfizer?
McKINNELL: I don`t think so. We certainly look at everything that might be available, but we have the capability now around the world to do what we need to do. We are always very interested in important new intellectual property or important new products such as one of the ones we`re launching in the six-weeks period, a very important new medicine for serious fungal infections.
GHARIB: All right, Well, thank you very much Mr. McKinnell, it`s always a pleasure talking to you.
McKINNELL: Susie, thank you.
