Mead Johnson sales up 16%

Mead Johnson sales up 16%

Constant dollar sales grew 21 percent in the Asia/Latin America segment and 2 percent in the North America/Europe segment.

Mead Johnson Nutrition Co. (NYSE: MJN) announced its financial results for the quarter ended September 30, 2013.

  • Third quarter sales of $1,047 million increased 14 percent from $921 million in the same quarter a year ago. On a constant dollar basis, sales were up 16 percent. Constant dollar sales grew 21 percent in the Asia/Latin America segment and two percent in the North America/Europe segment.
  • Four percent of the company's sales growth was due to an easier comparison attributed to distributors' inventory reductions in China during the prior-year quarter. In addition, price increases in Venezuela and Argentina that helped mitigate high inflation in these markets contributed two percent to company growth.
  • GAAP net earnings in the third quarter of 2013 were $0.79 per diluted share, compared to $0.69 per diluted share a year ago. China's National Development and Reform Commission (NDRC) assessed an administrative penalty in connection with its antitrust review, which impacted third quarter net earnings by $0.11 per diluted share.
  • Non-GAAP net earnings were $0.91 per diluted share for the third quarter of 2013, compared to $0.71 per diluted share in the prior-year quarter, driven by higher sales and gross margin, partially offset by a higher effective tax rate and higher demand-generation investments.
  • Full-year GAAP EPS guidance is expected to be in the range of $3.12 to $3.19. Specified Items are estimated at $0.18 per diluted share, which includes the administrative penalty related to the China antitrust review. Full-year non-GAAP EPS is now expected to be in the range of $3.30 to $3.37, an increase from $3.22 to $3.30.

“We delivered record EPS driven by double-digit sales growth while continuing near record level demand-generation investments,” said Chief Executive Officer Kasper Jakobsen. “Sales growth was strong in all regions, with share gains in most markets. Strong double-digit growth was driven by higher volumes, most notably in China/Hong Kong. In the North America/Europe segment, excellent share gains in Canada and higher non-WIC market share in the U.S. were somewhat offset by lower U.S. category consumption. Our strong year-to-date reported sales growth of 8 percent has led us to increase sales and earnings guidance for the full year.”

Third quarter results
Sales for the third quarter of 2013 totaled $1,046.8 million, up 14 percent from $921.3 million in the prior-year quarter. Sales benefited 12 percent from volume and four percent from price, reduced by two percent from foreign exchange. Gross margin for the third quarter of 2013 was 65.1 percent, up 390 basis points from 61.2 percent in the third quarter of 2012. The improvement was in both the Asia/Latin America and the North America/Europe segments. Higher gross margin was driven by pricing, productivity gains and favorable manufacturing volumes.

Earnings before interest and income taxes totaled $238.7 million compared to $183.2 million in the prior-year quarter. The EBIT improvement was primarily driven by higher sales and improved gross margin offset in part by continued investments in advertising and promotion, along with the administrative penalty assessed in China.

The effective tax rate was 29.4 percent in the third quarter, compared to 16.3 percent a year ago. The ETR increase was primarily due to the prior year change in management's assertion regarding certain foreign earnings and profits that are permanently invested abroad, favorable U.S. return-to-provision adjustments recorded in the prior year and the administrative penalty related to the China antitrust review, which is non-deductible for tax purposes.

Net earnings attributable to shareholders totaled $161.6 million, or $0.79 per diluted share, in the third quarter of 2013, compared to $140.3 million, or $0.69 per diluted share, in the prior-year quarter.

On a non-GAAP basis, which excludes Specified Items, net earnings attributable to shareholders totaled $184.7 million, or $0.91 per diluted share, for the third quarter of 2013, compared to $144.8 million, or $0.71 per diluted share, for the same quarter a year ago.

Third quarter segment results
The Asia/Latin America segment reported sales of $768.0 million for the third quarter of 2013, up 19 percent from $646.7 million in the same period of the prior year. Sales increased 17 percent from volume and four percent from price, reduced by two percent from foreign exchange. Price increases in Venezuela and Argentina helped mitigate high inflation in these markets and accounted for two percent of both the segment growth and total company growth. Volume growth was driven by higher market share and continued category growth in many markets. Five percent of segment growth and four percent of total company growth in the third quarter of 2013 was due to an easier comparison attributed to distributors' inventory reductions in China during the prior-year quarter. EBIT for the Asia/Latin America segment totaled $262.0 million in the third quarter of 2013, up from $193.1 million for the same quarter a year ago. The benefit from higher sales and improved gross margin was somewhat offset by increased investment in demand generation.

The North America/Europe segment reported sales of $278.8 million for the third quarter of 2013, up from $274.6 million in the third quarter of 2012. Price was responsible for the two percent sales increase. Excluding the impact of the 2012 exit of several non-core businesses, sales were up six percent compared to the prior-year quarter, with two percent from pricing and four percent from volume. Volume growth was driven by share gains in Canada and the recovery of U.S. non-WIC share. The share gains were partially offset by U.S. category consumption declines. EBIT for the North America/Europe segment totaled $63.0 million in the third quarter of 2013, up 18 percent from $53.2 million in the third quarter a year ago. The EBIT increase was primarily driven by higher sales and improved gross margin in the U.S. business.

Corporate and Other expenses increased primarily due to the administrative penalty assessed by the NDRC in connection with its antitrust review, of which $26.0 million was recorded in the third quarter.

Nine-month results
Sales for the nine months ended September 30, 2013 totaled $3,140.0 million, up eight percent from $2,920.2 million a year ago. Price and volume each contributed four percent to sales growth. Gross margin improved 150 basis points for the first nine months of 2013 versus the same period in the prior year. The increase was primarily in the North America/Europe segment.

Higher sales and improved gross margin supported higher demand-generation investments. EBIT for the first nine months of 2013 totaled $719.4 million, up eight percent from $680.3 million in the same period of the prior year.

The ETR for the first nine months of 2013 was 26.8 percent versus 24.0 percent a year ago. The ETR increase was primarily due to the prior year change in management's assertion regarding certain foreign earnings and profits that are permanently invested abroad, favorable U.S. return-to-provision adjustments recorded in the prior year and the administrative penalty related to the China antitrust review, which is non-deductible for tax purposes.

Net earnings attributable to shareholders for the first nine months of 2013 totaled $496.3 million, or $2.44 per diluted share, compared to $470.3 million, or $2.29 per diluted share, for the same period last year.

On a non-GAAP basis, which excludes Specified Items, net earnings attributable to shareholders totaled $529.7 million, or $2.60 per diluted share, in the first nine months of 2013, up 10 percent from $483.4 million, or $2.36 per diluted share, in the first nine months of 2012.

Nine-month segment results
Sales in the Asia/Latin America segment for the first nine months of 2013 were $2,280.7 million, up 11 percent from $2,056.0 million in the first nine months of 2012. Sales increased eight percent from volume and four percent from price, reduced by one percent from foreign exchange. Price increases in Venezuela and Argentina helped mitigate high inflation in these markets and accounted for two percent of the segment growth and one percent of total company growth. The China/Hong Kong business recovered market share lost in the prior year comparative period. For the balance of the segment, volume growth was driven by higher market share and continued category growth. EBIT for the segment totaled $770.0 million in the first nine months of 2013, compared to $713.9 million in the year-ago period. The EBIT improvement was driven by higher sales somewhat offset by higher demand-generation investments.

The North America/Europe segment reported sales of $859.3 million for the first nine months of 2013, down one percent from $864.2 million in the first nine months of 2012. Sales increased three percent from price, more than offset by a four percent volume decline. Excluding the impact of the 2012 exit of several non-core businesses, sales grew by three percent. Price and share gains, both in our U.S. non-WIC and Canada businesses mitigated lower category consumption in the United States. EBIT totaled $187.7 million for the first nine months of 2013, up 19 percent from $157.2 million in the same period of the prior year. The EBIT improvement was driven by favorable gross margin from pricing gains, lower dairy costs, favorable manufacturing volumes and productivity.

Corporate and Other expenses showed an increase primarily due to the $33.4 million administrative penalty assessed by the NDRC in connection with its antitrust review, higher pension settlement expense and transaction losses related to foreign exchange.

Additional information
The company has initiated an internal investigation of, and is voluntarily complying with a Securities and Exchange Commission request for documents relating to, certain business activities of the company’s local subsidiary in China. The company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the company’s products or may have otherwise been made and that may not have complied with company policies and applicable U.S. and/or local laws. The company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the company’s board of directors. At this time, the company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.

Outlook for 2013
“Based on our strong performance, we now anticipate reported sales growth between seven percent and eight percent for the full year,” Mr. Jakobsen said. “Constant dollar sales growth from our core operations, excluding businesses exited in late 2012, is expected to be in the range of nine percent and 10 percent. We continue to invest in demand generation where we see opportunities to accelerate growth. The company has raised guidance and now expects full-year non-GAAP EPS to be in the range of $3.30 to $3.37.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish