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What Hurt Mead Johnson Nutrition’s Revenue in 2Q16?

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Why did revenue fall?

In 2Q16, Mead Johnson Nutrition Company (MJN) reported a drop in revenue of ~9% to $942 million, compared to revenue of ~$1.0 billion in 2Q15. The company’s revenue missed analysts’ expectations by 2%. Currency translation had an adverse impact of 500 basis points on revenue this quarter. It’s important to note that 75% of Mead Johnson’s operations are international.

On a constant-dollar basis, sales declined by 4% because of a 5% drop in volume in 2Q16, compared to the same quarter a year ago. Investments to secure trade support and distribution of Enfinitas in China affected sales growth. However, pricing contributed 1 percentage point to sales growth.

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Segments’ contribution to sales

The company earns its revenue through three geographical segments—Asia, Latin America, and North America/Europe. The Asia segment accounted for 48% of Mead Johnson Nutrition’s revenue in the second quarter. Revenue was affected in all of the segments because of the rising US dollar. This particularly affected revenue in China, Mexico, and Argentina.

The Asia segment’s sales were 11% lower because of many factors, including a 4-percentage-point impact from foreign exchange, a 2-percentage-point impact from price and mix, and a 5-percentage-point impact from volume. In China, sales were affected by new product testing for imported goods and an increase in trade investments. Latin America showed a 16% sales decline, led by an adverse currency translation impact of 13%. This was particularly the case in Mexico and Argentina.

The North America/Europe segment reported a 1% decline in sales. Sales were negatively affected in the United States, where the company saw some market share pressure. However, this was offset by market share gains in both infant and child products in Canada.

Peers’ performance

Mead Johnson Nutrition’s peers in the industry include McCormick & Company (MKC), which reported revenue growth of 4%. J.M. Smucker (SJM) and Flowers Foods (FLO) reported revenue growth of 25% and 5%, respectively, for their last quarters.

To gain exposure to Mead Johnson Nutrition’s stock, you can invest in ETFs such as the iShares S&P Global Consumer Staples ETF (KXI) and the First Trust Large Cap Growth AlphaDEX Fund (FTC). They invest 0.46% and 0.37% of their respective portfolios in Mead Johnson Nutrition’s stock.

In the next part of this series, we’ll discuss what led to the rise in the company’s operating profit.

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