Mead Johnson Nutrition Company (MJN 52.28, −0.71, −1.34%) has announced its financial results for the second quarter ended June 30, 2010, including:
– Net sales in the quarter were up 6% versus the second quarter of 2009. Excluding the favorable impact of foreign exchange, sales increased 4%.
– GAAP net earnings of $0.59 per diluted share for second quarter of 2010, compared with $0.66 per diluted share for 2009.
– Non-GAAP (1) net earnings of $0.63 per diluted share for the second quarter of 2010, down slightly from $0.65 per diluted share a year earlier.
– Sales growth was driven by strong performance in Asia and Latin America, partially offset by a decline in North America. Earnings benefited from sales growth in emerging markets, lower interest expense and reduced effective tax rate, offset by higher commodity costs, demand-generation investments and costs incurred as a stand-alone company.
– Full-year non-GAAP EPS guidance range narrowed to $2.35 to $2.40 from $2.33 to $2.40. Including specified items estimated at $0.26 per share, GAAP EPS guidance is $2.09 to $2.14. (1) See "Non-GAAP Financial Measures" and the reconciliation of GAAP and non-GAAP results included in this release.
"We are pleased with our performance for the second quarter," said Chief Executive Officer Stephen W. Golsby. "The year continues to progress as expected with double-digit sales and earnings growth from emerging markets continuing to drive our results. Our quarterly earnings performance is particularly rewarding given the investments we are making in geographic expansion and demand creation, as well as the higher costs as a stand-alone company and the impact of anticipated increases in dairy costs."
Second Quarter Results
Net sales for the quarter ended June 30, 2010, totaled $764.2 million, up 6% from $719.3 million a year ago. Sales benefited 4% from price and 2% from foreign exchange with volume flat. Earnings before interest and income taxes (EBIT) for the second quarter totaled $172.9 million, down from $218.1 million a year earlier. Net earnings attributable to shareholders for the second quarter of 2010 totaled $121.4 million, or $0.59 per diluted share, compared with $134.5 million, or $0.66 per diluted share for the prior-year period.
The decline in EBIT in the second quarter of 2010 was primarily due to higher commodity and manufacturing costs, increased advertising and promotion spending, costs of an increased sales force and costs to separate from Bristol-Myers Squibb's IT platform. Partially offsetting the impact of these items was the benefit of significantly lower interest expense as a result of the debt refinancing completed in the fourth quarter of 2009 and a lower effective tax rate. Results for the second quarter of 2009 benefited from an $11.9 million gain on the sale of a non-strategic asset, partially offset by costs associated with the company's initial public offering (IPO) in February 2009.
On a non-GAAP basis, which excludes specified items, net earnings attributable to shareholders totaled $130.1 million, or $0.63 per diluted share, for the second quarter of 2010, compared with $133.4 million, or $0.65 per diluted share, for the same quarter a year ago.
Second Quarter Segment Results
The Asia/Latin America segment had net sales of $471.7 million for the second quarter of 2010, up 19% from $396.5 million in 2009. Sales benefited 10% from volume, 6% from price and 3% from foreign exchange. Segment performance was driven by double-digit constant-dollar sales growth, notably in China, Mexico, Hong Kong, Malaysia, Brazil and Peru. EBIT totaled $157.7 million, up 8% compared with $146.1 million for the year-ago second quarter. EBIT was adversely affected in the quarter by increased dairy prices and higher demand-generation investments in advertising and promotion and sales force additions in support of geographic expansion efforts, primarily in China and Brazil.
The North America/Europe segment reported net sales of $292.5 million for the second quarter of 2010, down 9% from $322.8 million in 2009. Sales benefited 2% from price and 1% from foreign exchange, offset by a 12% decline in volume. The company's launch of Enfamil Premium in the United States led to a retail inventory build in the second quarter of 2009. The timing of changes in inventory accounted for approximately three-quarters of the sales decline in the second quarter of 2010 with the balance primarily due to market contraction in the United States driven by lower births. EBIT totaled $78.2 million, compared with $119.0 million in the second quarter a year ago. The decrease was principally the result of lower sales and the impact of increased dairy and manufacturing costs.
Net sales for the six months ended June 30, 2010, totaled $1,527.7 million, up 8% from $1,412.3 million a year ago. Sales benefited 4% from price, 3% from foreign exchange and 1% from volume. EBIT for the first half of 2010 totaled $370.8 million, down from $406.9 million a year earlier. Net earnings attributable to shareholders for the first half of 2010 totaled $247.0 million, or $1.20 per diluted share, compared with $238.0 million, or $1.21 per diluted share for the prior-year period.
For the first half of 2010, the benefit from lower interest expense and a lower effective tax rate was offset by higher operating expense, including investments in advertising and promotion, and IT separation and stand-alone company costs. Results for 2009 include costs associated with the company's IPO, partially offset by a $10.0 million patent settlement in the first quarter and the $11.9 million gain on the asset sale in the second quarter, noted above.
On a non-GAAP basis, which excludes specified items, net earnings attributable to shareholders totaled $263.9 million, or $1.28 per diluted share, for the first half of 2010, compared with $249.2 million, or $1.22 per diluted share, for the same period a year ago.
Six-Month Segment Results
The Asia/Latin America segment had net sales of $927.7 million for the first half of 2010, up 18% from $786.3 million in 2009. Sales benefited 8% from volume, 6% from price and 4% from foreign exchange. EBIT totaled $324.0 million, up 10% compared with $294.8 million for the year-ago period. Segment results benefited from double-digit constant-dollar sales growth in the majority of the company's largest markets. In 2010, the company increased investments in advertising and promotion and sales force in support of geographic expansion efforts, primarily in China and Brazil.
The North America/Europe segment reported net sales of $600.0 million for the first half of 2010, down from $626.0 million in 2009. Sales benefited 2% from foreign exchange and 1% from price, offset by a 7% decline in volume. The sales decline was primarily attributed to the impact of the retailer inventory build in the second quarter of 2009 and market contraction in the United States. EBIT totaled $175.3 million, compared with $220.2 million in the same period a year ago. The decrease was primarily due to lower sales, a lower gross margin driven by higher commodity and manufacturing costs, and increased advertising and promotion spending.
Conference Call Scheduled
The company will host a conference call at 7:30 a.m. CDT today during which company executives will review second quarter financial results and respond to questions from analysts and investors. The call will be broadcast over the Internet at meadjohnson.com. To listen to the call, go to the Web site at least 15 minutes before the call and click on the Investors tab. Security analysts and investors wishing to participate by telephone should call 1-866-700-7173, pass code: Mead Johnson. Callers outside of North America should call +1-617-213-8838 to be connected. A replay of the conference call will be available through midnight CDT Thursday, Aug. 5, 2010, by calling 1-888-286-8010 or +1-617-801-6888, pass code: 54354269. The replay will also be available at meadjohnson.com.
Certain statements in this news release are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are identified by words such as "expects," "intends" and "believes," involve certain risks and uncertainties 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 adverse effect of commodity price increases; (4) increased competition from branded, private label, store and economy-branded products; (5) the effect of an economic downturn on consumers' purchasing behavior and customers' ability to pay for product; (6) inventory reductions by customers; (7) the adverse effect of changes in foreign currency exchange rates; (8) legislative, regulatory or judicial action that may adversely affect the company's ability to advertise its products or maintain product margins; (9) the possibility of changes in the Women, Infant and Children (WIC) program, or increases in levels of participation in WIC; and (10) the ability to develop and market new, innovative products. For additional information on these and other factors, see the risk factors identified in the company's periodic reports, including the annual report on Form 10-K for 2009, quarterly reports on Form 10-Q and current reports on Form 8-K, filed with, or furnished to, the Securities and Exchange Commission, available upon request or at meadjohnson.com. 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 60 markets worldwide. The company's mission is to create nutritional brands and products trusted to give infants and children 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(R) infant formula, is the world's leading brand franchise in pediatric nutrition. For more information, go to meadjohnson.com.