Mead Johnson Plans to implement Zero-based Budgeting to Reduce Cost


Jan. 30 2016, Updated 7:04 p.m. ET

Mead Johnson’s higher margins

Mead Johnson Nutrition’s (MJN) margins are on the higher side compared to its biggest peers in the infant and children’s nutrition industry, (XLP) Nestlé (NSRGY), Kraft Heinz Company (KHC), and Abbott Laboratories (ABT).

Among these companies, Mead Johnson has the highest gross, EBITDA (earnings before interest, tax, depreciation, and amortization), operating, and net income margin.

Article continues below advertisement

The importance of low input prices

Notably, the diary spot price has declined 20% September YTD (year-to-date). Due to the lower input dairy prices, Mead Johnson has witnessed an increase in its gross margins. The company expects low dairy prices environment to continue through the first half of 2016, improving its gross margin and its peers’ gross margins across the industry.

However, this still may not influence Mead Johnson’s operating margin, considering the higher investment in demand creation, mainly in Asia. The company nevertheless is focused on productivity with fixed-cost productivity programs in dairy and other raw materials. Under this productivity initiative, the company has been working on packaging formulation innovations.

Zero-based budgeting and organization optimization

Mead Johnson also plans to implement zero-based-budgeting for simplification and standardization. In the optimization of organization initiative, marketing organization will go down from 2.5% to 2%, and other functions from 3% to 2.5%. The company has plans to save $120 million by 2018, half of which are expected to achieve by 2016. The company expects the $120 million in savings to come from its 30% reduction in total current spending of $400 million.

The company also plans to optimize advertising and promotion efficiencies and expects to lower the advertising and promotion expenses as a percentage of sales by 50 to 100 basis points over the next three years. These initiatives could likely help MJN to improve its margins further.

Now let’s take a more detailed look at Mead Johnson’s financials.


More From Market Realist

  • Michelob Ultra beer
    Company & Industry Overviews
    AB InBev Is the Top Beer Brand Worldwide—Is It a Monopoly?
  • Businesswoman looking out a window
    Company & Industry Overviews
    Shifting Focus: Three Women Investing Funds in 2021
  • Aol logo on office building,
    Company & Industry Overviews
    What We Know About Apollo Global Management, New Owners of AOL and Yahoo
  • Chick-fil-A sign
    Company & Industry Overviews
    Why It Only Costs $10K to Own a Chick-fil-A Location
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.