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Mead Johnson Company’s Stable Performance in 3Q15

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3Q15 performance highlights

Mead Johnson (MJN) reported net sales of $977.5 million in 3Q15. It recorded strong performance in the North America–Europe segment, which was insufficient to entirely offset its sales weakness in emerging markets.

The North America–Europe segment delivered strong sales growth, driven by market share gains and favorable market conditions in the United States and Canada.

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China

In China, price-based promotional activities were seen across all channels. Mead Johnson recently introduced a fully imported range of products in China, which are performing well. However, weakness in demand for locally manufactured products remained a challenge. In several other emerging markets, share gains made late in the quarter were insufficient to offset earlier share losses.

Mead Johnson’s EBIT (earnings before income and tax) rose 7% above 3Q14, mainly due to higher gross margins as a result of favorable dairy costs across all segments. The gross margin in the quarter improved by 480 basis points over 3Q14 as the company continued to benefit from lower dairy prices.

Despite less favorable market conditions, Mead Johnson continued to invest in brand building and innovation within the quarter. The company’s spend on advertising and promotion was 16% of sales in 3Q15. The company focused its spend on driving key initiatives in their top markets including China, Thailand, and Mexico.

The company expects to incur charges of ~$25 million associated with the Fuel for Growth initiative in 4Q15. Inclusive of this charge, specified items are expected to be $0.18 per share excluding any further mark-to-market pension adjustments. As a result, full-year GAAP EPS is expected to be in the range of $3.15–$3.25. Short-term borrowings and long-term debt were $1.5 million and $1.8 billion, respectively, as of September 30, 2015.

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About the company

Mead Johnson Nutrition Company manufactures, distributes, and sells infant formula, children’s nutrition, and other nutritional products. It offers everyday infant formula products as a breast milk substitute for healthy infants for use as the infant’s source of nutrition, as well as a supplement to breastfeeding. Its brands include the Enfamil Premium, Enfapro Premium, and Enfamil A+.

Mead Johnson also provides specialty formula products, including formulas for addressing various conditions or special medical needs, under brands such as Nutramigen and Puramino. The company sells its products to healthcare professionals and retailers in North America, Europe, Asia, and Latin America. Mead Johnson Nutrition Company’s headquarters are located in Glenview, Illinois.

Among Mead Johnson’s peers in the food and packaging industry, Mondelēz International (MDLZ) reported a net margin of 5.3% in its last reported quarter. The Hershey Company (HSY) and the Kraft Heinz Company (KHC) reported net margins of -6.33% and 5.47%, respectively. The iShares Dow Jones US Consumer Goods ETF (IYK) invests 0.71% of its portfolio in MJN stock.

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