Mead Johnson Nutrition Company (NYSE: MJN) today announced its
financial results for the quarter ended March 31, 2015.
- Constant dollar sales(1) increased
slightly more than 3 percent. Foreign currency translation reduced
sales by 5 percent and reported sales decreased 2 percent.
- Gross margin improved to 64.0 percent,
due to pricing and lower dairy costs.
- Non-GAAP EPS was up 7 percent to $1.09;
GAAP EPS was $1.02.
- Company reaffirms full year 2015
non-GAAP guidance.
“We had a solid start to 2015,” said Chief Executive Officer
Kasper Jakobsen, “considering that both our U.S. and China
businesses are being compared to a strong prior year quarter. With
over 70% of our business outside the United States, foreign
currency translation negatively impacted our topline. Investment in
demand-generation activities continues to be strong and we expect
an increase to support strategic initiatives in the coming
quarters. We are creating production capacity and flexibility for
our China business to support consumer preference for fully
imported products.”
First Quarter Company Results
First quarter sales of $1,094.4 million were down from $1,113.3
million in the prior year quarter. Constant dollar sales increased
slightly more than three percent, driven by pricing. In aggregate,
volume was flat due primarily to tough prior year comparisons in
the U.S. and China businesses.
Gross margin was 64.0 percent, up from 63.6 percent in the first
quarter of 2014. Gross margin benefited from price increases and
lower dairy input costs. In gross profit, the impact of Euro
denominated manufacturing costs partially offset the adverse effect
of foreign exchange to sales.
Investments in demand-generation activities, in reported
dollars, decreased compared to the prior year quarter due to
foreign exchange impacts and the timing of promotional campaigns.
Earnings before interest and income taxes (“EBIT”) totaled $285.2
million in the first quarter of 2015, compared to $291.2 million
for the comparative period in 2014.
The company’s effective tax rate (“ETR”) was 23.7 percent in the
first quarter, compared to 25.5 percent in the prior year quarter.
The lower ETR was primarily due to a favorable change in the
geographic earnings mix.
Net earnings attributable to shareholders totaled $207.4
million, or $1.02 per diluted share, in the first quarter of 2015,
compared to $202.4 million, or $1.00 per diluted share, in the
prior year quarter. On a non-GAAP basis, net earnings attributable
to shareholders totaled $222.2 million, or $1.09 per diluted share,
for the first quarter of 2015, compared to $206.1 million, or $1.02
per diluted share, for the same quarter a year ago. Higher gross
margins, lower operating expenses and the ETR were the main drivers
of earnings growth.
(1) Constant dollar figures exclude the impact of changes in
foreign currency exchange rates and Non-GAAP results exclude
Specified Items. For a description of Specified Items, and a
reconciliation of non-GAAP to GAAP and constant dollar results, see
the schedules titled “Supplemental Financial Information” and
“Reconciliation of Non-GAAP to GAAP Results.”
First Quarter Segment Results
North America/Europe
North America/Europe segment sales increased three percent on a
constant dollar basis. On a reported basis, sales were $309.0
million, up from $308.2 million in the same period a year ago.
Sales growth and gross margin improvement were driven by price
increases taken in 2014. Gains in infant and children's market
share were partially offset by the timing of retailer purchases and
a strong prior year quarter which included WIC(2) contract
gains.
Demand-generation investments were below prior year, primarily
due to the timing of expenditures. EBIT of $78.3 million increased
from $66.1 million in the first quarter of 2014, primarily due to
higher gross margins and lower investments.
Latin America
Latin America segment sales increased 13 percent on a constant
dollar basis. Excluding the impact of inflationary price increases
in Venezuela and Argentina, constant dollar sales increased five
percent. On a reported basis, sales were $204.4 million, down four
percent from $212.4 million in the same period a year ago. Reported
sales were adversely impacted by foreign currency translation,
particularly in Venezuela, where price increases were more than
offset by the impact of currency depreciation.
Operating expenses decreased primarily due to foreign currency
translation and transaction impacts, the timing of promotional
spending and the absence of one-time expenses in the prior year.
EBIT of $57.3 million, increased from $46.6 million for the same
quarter a year ago, primarily from the aforementioned lower
expenses.
Asia
Asia segment sales were in-line with the prior year quarter on a
constant dollar basis. On a reported basis, sales were $581.0
million, down two percent from $592.7 million in the prior year
quarter. Reported sales for the business in China showed sequential
improvement from the fourth quarter of 2014. Hong Kong experienced
protests about cross-border trade which led to volume declines in
the quarter. Several Asian markets had a tough comparison to the
prior year, when the company benefited from competitors’ supply
disruption.
Operating expenses were higher primarily due to inflationary
cost increases. Promotional spending for innovation and new product
launches in the Philippines and Vietnam were partially offset by
the timing of promotion activities in other markets. EBIT was
$231.5 million, compared to $241.3 million for the same quarter a
year ago, primarily due to lower sales.
Corporate and Other
Corporate and Other expenses were $81.9 million for the first
quarter of 2015, up from $62.8 million in the first quarter of 2014
mainly due to the China investigation. As disclosed in the Form
10-Q report, issued this morning, the company has progressed in its
discussions with the SEC regarding the China matter. The company's
best estimate of a potential settlement that may result from these
discussions is $12 million, which has been accrued. The company
emphasizes that its discussions with the SEC staff are ongoing and
no settlement has been agreed to date. There can be no assurance
that the ultimate amount paid by the company to resolve this matter
will not exceed the amount accrued to date or that other sanctions
will not be imposed.
(2) The Special Supplemental Nutrition Program for Women,
Infants and Children (WIC) is a federal assistance program of the
Food and Nutrition Services (FNS) of the United States Department
of Agriculture (USDA).
Cash Flow Items
Cash and cash equivalents improved by $136.2 million since
December 31, 2014 and were $1,433.9 million at March 31, 2015.
Long-term debt was $1,511.9 million as of March 31, 2015. The
company continues to invest in sustaining organic growth, while
assessing opportunities for acquisitions in order to create
long-term value for shareholders.
- The board of directors approved a 10
percent dividend increase, continuing double-digit growth each year
since the company went public.
- Operating cash flow was $274.5 million
in the quarter ended March 31, 2015 compared to $197.6 million in
the prior year quarter. With similar earnings in both years, the
change is due primarily to inventory increases in 2014.
- The company expects further investments
in capital projects to expand the capacity in the Netherlands and
the United States in support of the company's two largest
businesses.
Outlook for 2015
“We reiterate our 2015 non-GAAP EPS in the range of $3.90 to
$4.00,” Mr. Jakobsen said. “We anticipate revenue growth around 7%
in constant dollars with growth largely in the second half of the
year as new initiatives are launched.”
The company currently expects the impact of adverse foreign
currency translation to be approximately five percent, leading to
reported sales growth of approximately two percent. Specified Items
are currently expected to be $0.11 per diluted share excluding any
mark-to-market pension adjustments. As a result, full year GAAP EPS
is expected to be in the range of $3.79 to $3.89.
Conference Call Scheduled
Mead Johnson will host a conference call at 8:30 a.m. CDT today,
during which company executives will review first quarter 2015
financial results and respond to questions from analysts and
investors. The call will be broadcast over the Internet at
http://investors.meadjohnson.com.
Security analysts and investors wishing to participate by
telephone should call (877) 359-9508, pass code: Mead
Johnson. Callers outside of North America should call
+1-224-357-2393 to be connected. A replay of the conference call
will be available through 11 pm CDT Sunday, June 7, 2015, by
calling (855) 859-2056 or outside of North America by calling
+1-404-537-3406, pass code: 14813139. The replay will also be
available at http://investors.meadjohnson.com.
Forward-Looking Statements
Certain statements in this news release are forward-looking as
defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements may be identified by the fact they
use words such as “should,” “expect,” “anticipate,” “estimate,”
“target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe”
and other words and terms of similar meaning and expression. Such
statements are likely to relate to, among other things, a
discussion of goals, plans and projections regarding financial
position, results of operations, cash flows, market position,
product development, product approvals, sales efforts, expenses,
capital expenditures, performance or results of current and
anticipated products and the outcome of contingencies such as legal
proceedings and financial results. Forward-looking statements can
also be identified by the fact that they do not relate strictly to
historical or current facts. Such forward-looking statements are
based on current expectations that involve inherent risks,
uncertainties and assumptions that may cause actual results to
differ materially from expectations as of the date of this news
release. These risks include, but are not limited to: (1) the
ability to sustain brand strength, particularly the Enfa family of
brands; (2) the effect on the company’s reputation of real or
perceived quality issues; (3) the effect of regulatory restrictions
related to the company’s products; (4) the adverse effect of
commodity costs; (5) increased competition from branded, private
label, store and economy-branded products; (6) the effect of an
economic downturn on consumers’ purchasing behavior and customers’
ability to pay for product; (7) inventory reductions by customers;
(8) the adverse effect of changes in foreign currency exchange
rates; (9) the effect of changes in economic, political and social
conditions in the markets where we operate; (10) changing consumer
preferences; (11) the possibility of changes in the WIC program, or
participation in WIC; (12) legislative, regulatory or judicial
action that may adversely affect the company’s ability to advertise
its products, maintain product margins, or negatively impact the
company’s reputation or result in fines or penalties that decrease
earnings; and (13) the ability to develop and market new,
innovative products. For additional information regarding these and
other factors, see the company’s filings with the United States
Securities and Exchange Commission (the “SEC”), including its most
recent Annual Report on Form 10-K, which filings are available upon
request from the SEC or at www.meadjohnson.com. The company cautions readers
not to place undue reliance on any forward-looking statements,
which speak only as of the date made. The company undertakes no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or
otherwise.
About Mead Johnson
Mead Johnson, a global leader in pediatric nutrition, develops,
manufactures, markets and distributes more than 70 products in over
50 markets worldwide. The company’s mission is to nourish the
world’s children for the best start in life. The Mead Johnson
name has been associated with science-based pediatric nutrition
products for over 100 years. The company’s “Enfa” family of brands,
including Enfamil® infant formula, is the world’s leading brand
franchise in pediatric nutrition. For more information, go to
www.meadjohnson.com.
MEAD JOHNSON NUTRITION COMPANY CONSOLIDATED
STATEMENTS OF EARNINGS (Dollars and shares in millions,
except per share data) (UNAUDITED) Three
Months Ended March 31, 2015 2014 NET SALES
$ 1,094.4 $ 1,113.3 Cost of Products Sold 393.5 405.7 GROSS
PROFIT 700.9 707.6 Operating Expenses: Selling, General and
Administrative 233.2 232.9 Advertising and Promotion 144.4 155.7
Research and Development 25.9 27.1 Other Expenses – net 12.2
0.7 EARNINGS BEFORE INTEREST AND INCOME TAXES 285.2 291.2
Interest Expense – net 13.8 12.4 EARNINGS BEFORE INCOME
TAXES 271.4 278.8 Provision for Income Taxes 64.3
71.0 NET EARNINGS 207.1 207.8 Less Net Earnings/(Loss) Attributable
to Noncontrolling Interests (0.3 ) 5.4 NET EARNINGS ATTRIBUTABLE TO
SHAREHOLDERS $ 207.4 $ 202.4 Earnings per Share(a)–
Basic Net Earnings Attributable to Shareholders $ 1.02 $
1.00 Earnings per Share(a)– Diluted Net Earnings Attributable to
Shareholders $ 1.02 $ 1.00 Weighted-average Shares –
Diluted 202.9 202.4 Dividends Declared per Share $ 0.4125 $ 0.3750
(a) The numerator for basic and diluted earnings per share is
net earnings attributable to shareholders reduced by dividends and
undistributed earnings attributable to unvested shares. The
denominator for basic earnings per share is the weighted-average
shares outstanding during the period. The denominator for diluted
earnings per share is the weighted-average shares outstanding
adjusted for the effect of dilutive stock options and performance
share awards.
MEAD JOHNSON NUTRITION COMPANY CONSOLIDATED
BALANCE SHEETS (Dollars and shares in millions, except per
share data) (UNAUDITED) March 31, 2015
December 31, 2014 ASSETS CURRENT ASSETS: Cash and
Cash Equivalents $ 1,433.9 $ 1,297.7 Receivables—net of allowances
of $7.5 and $9.6 respectively 381.9 387.8 Inventories 549.9 555.5
Deferred Income Taxes – net of valuation allowance 78.5 86.8 Income
Taxes Receivable 14.5 7.7 Prepaid Expenses and Other Assets 80.2
82.6 Total Current Assets 2,538.9 2,418.1 Property,
Plant, and Equipment – net 899.2 912.7 Goodwill 159.3 162.7 Other
Intangible Assets – net 71.7 75.4 Deferred Income Taxes – net of
valuation allowance 64.1 65.1 Other Assets 151.5 142.5
TOTAL $ 3,884.7 $ 3,776.5
LIABILITIES AND
EQUITY CURRENT LIABILITIES: Short-term Borrowings $ — $ 4.1
Accounts Payable 494.3 512.3 Dividends Payable 84.4 76.6 Accrued
Expenses 213.0 203.7 Accrued Rebates and Returns 338.4 329.1
Deferred Income – current 14.8 34.3 Income Taxes – payable and
deferred 55.1 46.4 Total Current Liabilities 1,200.0
1,206.5 Long-Term Debt 1,511.9 1,503.9 Deferred Income Taxes –
noncurrent 11.2 12.4 Pension and Other Post-employment Liabilities
210.5 211.1 Other Liabilities 202.9 192.8 Total
Liabilities 3,136.5 3,126.7 COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST 71.8 66.0 EQUITY
Shareholders’ Equity Common Stock, $0.01 par value: 3,000
authorized, 207.5 and 207.2 issued, respectively 2.1 2.1 Additional
Paid-in/(Distributed) Capital (625.5 ) (641.3 ) Retained Earnings
1,885.3 1,775.0 Treasury Stock – at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (231.8 ) (198.9 ) Total
Shareholders’ Equity 667.5 574.3 Noncontrolling Interests 8.9
9.5 Total Equity 676.4 583.8 TOTAL $
3,884.7 $ 3,776.5
MEAD JOHNSON NUTRITION
COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions) (UNAUDITED) Three
Months Ended March 31, 2015 2014 CASH
FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 207.1 $ 207.8
Adjustments to Reconcile Net Earnings to Net Cash Provided by
Operating Activities: Depreciation and Amortization 24.1 22.0 Other
22.9 26.7 Changes in Assets and Liabilities 22.1 (57.5 ) Pension
and Other Post-employment Benefits Contributions (1.7 ) (1.4 ) Net
Cash Provided by Operating Activities 274.5 197.6 CASH FLOWS FROM
INVESTING ACTIVITIES: Payments for Capital Expenditures (46.1 )
(63.1 ) Proceeds from Sale of Property, Plant and Equipment 0.2 0.4
Proceeds from/(Investment in) Other Companies — 4.0
Net Cash Used in Investing Activities (45.9 ) (58.7 ) CASH FLOWS
FROM FINANCING ACTIVITIES: Proceeds from Short-term Borrowings —
0.1 Repayments of Short-term Borrowings (4.0 ) (0.3 ) Payments of
Dividends (76.0 ) (68.8 ) Stock-Based Compensation Related Proceeds
and Excess Tax Benefits 6.9 11.6 Purchases of Treasury Stock —
(22.5 ) Stock-Based Compensation Related Tax Withholdings (1) (7.2
) (7.7 ) Net Cash Used in Financing Activities (80.3 ) (87.6 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents
(12.1 ) (12.1 ) NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 136.2 39.2 CASH AND CASH EQUIVALENTS: Beginning of
Period 1,297.7 1,050.8 End of Period $ 1,433.9
$ 1,090.0
(1) For a discussion of this new line item, see Note 2 to the
financial statements included in the Company's Quarterly Report on
Form 10-Q for the first quarter of 2015.
MEAD JOHNSON NUTRITION COMPANY
SUPPLEMENTAL FINANCIAL
INFORMATION
(Dollars in millions)
(UNAUDITED)
This news release contains non-GAAP financial measures,
which may include non-GAAP net sales, gross profit, certain
components of operating expenses including selling, general and
administrative, research and development and other
(income)/expenses net, EBIT, earnings and earnings per share
information. The items included in GAAP measures, but excluded for
the purpose of determining the above listed non-GAAP financial
measures, include significant income/expenses not indicative of
underlying operating results, including the related tax effect. The
above listed non-GAAP measures represent an indication of the
company’s underlying operating results and are intended to enhance
an investor’s overall understanding of the company’s financial
performance. In addition, this information is among the primary
indicators the company uses as a basis for evaluating company
performance, setting incentive compensation targets and planning
and forecasting of future periods. This information is not intended
to be considered in isolation or as a substitute for financial
measures prepared in accordance with GAAP. Tables that reconcile
non-GAAP to GAAP disclosure follow.
Three
Months Ended March 31, % Change % Change Due to
% of % of Constant
Foreign Net Sales 2015
Total 2014 Total Reported Dollar
Volume Price/Mix Exchange Asia $ 581.0 53 % $
592.7 53 % (2 )% — % (1 )% 1 % (2 )% Latin America 204.4 19 % 212.4
19 % (4 )% 13 % 3 % 10 % (17 )% North America/Europe 309.0
28 % 308.2 28 % — % 3 % — % 3 % (3 )% Net Sales $ 1,094.4
100 % $ 1,113.3 100 % (2 )% 3 % — % 3 % (5 )%
Earnings Before Interest and Income Taxes (EBIT)
2015
EBIT% ofSales
2014
EBIT% ofSales
% Change Asia $ 231.5 40 % $ 241.3 41 % (4 )% Latin America
57.3 28 % 46.6 22 % 23 % North America/Europe 78.3 25 % 66.1 21 %
18 % Corporate and Other (81.9 ) (62.8 ) (30 )% EBIT $ 285.2
26 % $ 291.2 26 % (2 )%
MEAD JOHNSON
NUTRITION COMPANY RECONCILIATION OF NON-GAAP TO GAAP
RESULTS (Dollars in millions, except per share data)
(UNAUDITED) Three Months Ended March 31, 2015
Three Months Ended March 31, 2014 Specified
Items (a) Specified Items
(a) Legal, Legal,
Settlement Severance Settlement
Severance Investigation and Related and
Other Non- and Related and Other
Non- GAAP Accrual Costs Costs
GAAP GAAP Costs Costs
GAAP NET SALES $ 1,094.4 $ 1,094.4 $ 1,113.3 $ 1,113.3 Cost
of Products Sold 393.5 — — — 393.5
405.7 — — 405.7 GROSS
PROFIT 700.9 — — — 700.9 707.6 — — 707.6 GROSS MARGIN % 64.0 % — %
— % — % 64.0 % 63.6 % — % — % 63.6 % Operating Expenses:
Selling, General and Administrative 233.2 — (0.7 ) (0.1 ) 232.4
232.9 (5.7 ) (0.1 ) 227.1 Advertising and Promotion 144.4 — — —
144.4 155.7 — — 155.7 Research and Development 25.9 — — — 25.9 27.1
— — 27.1 Other (Income)/Expenses – net 12.2 (12.0 ) —
(2.2 ) (2.0 ) 0.7 — — 0.7
EARNINGS BEFORE INTEREST AND INCOME TAXES 285.2 12.0 0.7 2.3 300.2
291.2 5.7 0.1 297.0 EBIT as a % of Sales 26.1 % 1.1 % 0.1 % 0.2 %
27.4 % 26.2 % 0.5 % — % 26.7 % Interest Expense – net 13.8
— — — 13.8 12.4 —
— 12.4 EARNINGS BEFORE INCOME TAXES 271.4 12.0
0.7 2.3 286.4 278.8 5.7 0.1 284.6 Provision for Income Taxes
64.3 — 0.2 — 64.5 71.0
2.1 — 73.1 Effective Tax Rate 23.7 % (1.0 )% —
% (0.2 )% 22.5 % 25.5 % 0.2 % — % 25.7 % NET EARNINGS 207.1
12.0 0.5 2.3 221.9 207.8 3.6 0.1 211.5 Less Net Earnings
Attributable to Noncontrolling Interests (0.3 ) — — —
(0.3 ) 5.4 — — 5.4 NET
EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 207.4 $ 12.0
$ 0.5 $ 2.3 $ 222.2 $ 202.4 $
3.6 $ 0.1 $ 206.1 Earnings per Share– Diluted
Net Earnings Attributable to Shareholders $ 1.02 $ 0.06
$ — $ 0.01 $ 1.09 $ 1.00
$ 0.02 $ — $ 1.02
Certain figures do not sum due to rounding.
(a) All Specified Items are included in Corporate and Other.
Mead Johnson Nutrition CompanyInvestors:Kathy MacDonald(847)
832-2182kathy.macdonald@mjn.comorMedia:Christopher Perille(847)
832-2178chris.perille@mjn.com
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