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Mead Johnson Nutrition Reports Third Quarter and Nine-Month 2015 Earnings; Updates 2015 Guidance; and Announces $1.5 Billion Share Repurchase Plan

GLENVIEW, Ill.--(BUSINESS WIRE)--Oct. 22, 2015-- Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial results for the quarter and nine months ended September 30, 2015.

“Our most recently completed quarter was more challenging than we had anticipated. However, we are delighted with the continued strength of our North American and European businesses, as well as encouraged by the early feedback on our new initiatives in China. We have adjusted our expectations for full-year 2015 and expect near-term challenges in our emerging market segments to linger into 2016." said Kasper Jakobsen, Chief Executive Officer.

(1) Constant dollar figures exclude the impact of changes in foreign currency exchange rates.

(2) Non-GAAP or as adjusted results exclude Specified Items. For a description of Specified Items, and a reconciliation of non-GAAP to GAAP and constant dollar results, see the schedules titled “Supplemental Financial Information” and “Reconciliation of Non-GAAP to GAAP Results.”

     
Third Quarter 2015
(Dollars in Millions)
(UNAUDITED)
 
Three Months Ended September 30, % Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 476.8 49 % $ 561.5 52 % (15 )% (11 )% (7 )% (4 )% (4 )%
Latin America 184.5 19 % 222.9 20 % (17 )% (1 )% (5 )% 4 % (16 )%
North America/Europe 316.2   32 % 306.3   28 % 3 % 7 % 3 % 4 % (4 )%
Net Sales $ 977.5   100 % $ 1,090.7   100 % (10 )% (4 )% (4 )% % (6 )%
 
 
Three Months Ended September 30,
Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

  % Change
Asia $ 154.2 32 % $ 186.2 33 % (17 )%
Latin America 38.9 21 % 52.6 24 % (26 )%
North America/Europe 101.3 32 % 66.8 22 % 52 %
Corporate and Other (68.4 ) (63.0 ) (9 )%
EBIT as reported $ 226.0   23 % $ 242.6   22 % (7 )%
Specified Items $ 13.0 $ 3.4
Impact of F/X $ 25.3    
EBIT as adjusted $ 264.3   $ 246.0   7 %
 
     

Nine Months 2015

(Dollars in Millions)
(UNAUDITED)
 
Nine Months Ended September 30, % Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 1,571.0 51% $ 1,729.8 52 % (9 )% (7 )% (6 )% (1 )% (2 )%
Latin America 587.3 19% 659.7 20 % (11 )% 4 % (3 )% 7 % (15 )%
North America/Europe 946.0   30% 925.6   28 % 2 % 5 % 1 % 4 % (3 )%
Net Sales $ 3,104.3   100% $ 3,315.1   100 % (6 )% (1 )% (3 )% 2 % (5 )%
 
 
Nine Months Ended September 30,
Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

 

% Change

Asia $ 542.1 35 % $ 623.4 36 % (13 )%
Latin America 141.0 24 % $ 152.6 23 % (8 )%
North America/Europe 264.9 28 % $ 200.9 22 % 32 %
Corporate and Other (207.6 ) $ (198.2 ) (5 )%
EBIT as reported $ 740.4   24 % $ 778.7   23 % (5 )%
Specified Items $ 20.8 $ 20.9
Impact of F/X $ 42.4    
EBIT as adjusted $ 803.6   $ 799.6   1 %
 

Cash Flow Items and Share Repurchases

Outlook for 2015

The company expects full year 2015 constant dollar revenue to be 2% to 3% below the prior year. Foreign exchange is assumed to adversely affect translation into U.S. dollars, resulting in estimated reported sales of 7% to 8% below the prior year.

“With the majority of the year behind us, we estimate constant dollar revenue to be slightly below the prior year and non-GAAP EPS to fall between $3.33 to $3.43. This has shaped up to be a challenging year on several fronts, and I am satisfied with the way we are adjusting our strategies appropriately in recognition of environmental changes. We remain committed to our investment in growth initiatives and innovation critical to our long term success. We are building momentum behind our Fuel For Growth productivity initiative to ensure we can fund growth initiatives appropriately and support a gradual improvement in profitability, while also delivering our long-term financial ambition. In today’s Investor Day presentations, we will provide more detail on our growth initiatives and cost reduction actions as well as outline a plan to return capital to shareholders via a new, larger share buyback program. In the latest quarter, we bought back approximately three percent of our outstanding shares. Consistent with my earlier statements that we will optimize our capital structure over time, the next phase of our share repurchase program will go further,” said Kasper Jakobsen, Chief Executive Officer.

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 to $3.25.

Conference Call Scheduled

Mead Johnson will host a conference call at 8:30 a.m. CDT today, during which company executives will review financial results for the third quarter and first nine months of 2015. Security analysts and investors wishing to participate by telephone should call (877) 359-9508, pass code: Mead Johnson. Callers outside of North America should call +1-224-357-2393 to be connected. The earnings conference call will also be broadcast over the Internet at http://investors.meadjohnson.com. A replay of the earnings conference call will be available through 11:00 p.m. CST Sunday, December 6, 2015, by calling (855) 859-2056, or outside of North America by calling +1-404-537-3406, pass code: 50955892. The replay will also be available at meadjohnson.com.

The earnings call will be followed by the bi-annual Investor Day event from 9:00 a.m. to 1:00 p.m. CDT, during which senior executives will discuss the Company's strategies and plans. Two Q&A sessions will be hosted during the management presentation. The management presentation will be broadcast over the Internet at http://investors.meadjohnson.com. The replay will also be available at meadjohnson.com.

Forward-Looking Statements

Certain statements in this news release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the fact they use words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression. Such statements are likely to relate to, among other things, a discussion of goals, plans and projections regarding financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, capital expenditures, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations that involve inherent risks, uncertainties and assumptions 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 effect of regulatory restrictions related to the company’s products; (4) the adverse effect of commodity costs; (5) increased competition from branded, private label, store and economy-branded products; (6) the effect of an economic downturn on consumers’ purchasing behavior and customers’ ability to pay for product; (7) inventory reductions by customers; (8) the adverse effect of changes in foreign currency exchange rates; (9) the effect of changes in economic, political and social conditions in the markets where we operate; (10) changing consumer preferences; (11) the possibility of changes in the WIC(3) program, or participation in WIC; (12) legislative, regulatory or judicial action that may adversely affect the company’s ability to advertise its products, maintain product margins, or negatively impact the company’s reputation or result in fines or penalties that decrease earnings; and (13) the ability to develop and market new, innovative products. For additional information regarding these and other factors, see the company’s filings with the United States Securities and Exchange Commission (the “SEC”), including its most recent Annual Report on Form 10-K, which filings are available upon request from the SEC or at www.meadjohnson.com. The company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. 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 over 50 markets worldwide. The company’s mission is to nourish the world’s children for 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® infant formula, is the world’s leading brand franchise in pediatric nutrition. For more information, go to www.meadjohnson.com.

(3) The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) is a federal assistance program of the Food and Nutrition Services (FNS) of the United States Department of Agriculture (USDA).

   
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
NET SALES $ 977.5 $ 1,090.7 $ 3,104.3 $ 3,315.1
Cost of Products Sold 346.8   437.9   1,096.7   1,270.4  
GROSS PROFIT 630.7 652.8 2,007.6 2,044.7
Operating Expenses:
Selling, General and Administrative 216.1 240.2 679.5 715.4
Advertising and Promotion 156.1 158.9 490.7 489.2
Research and Development 26.3 28.7 79.9 82.5
Other (Income)/Expenses – net 6.2   (17.6 ) 17.1   (21.1 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 226.0 242.6 740.4 778.7
 
Interest Expense—net 14.8   18.3   42.5   46.0  
EARNINGS BEFORE INCOME TAXES 211.2 224.3 697.9 732.7
 
Provision for Income Taxes 56.6   36.0   173.6   160.5  
NET EARNINGS 154.6 188.3 524.3 572.2
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests (0.6 ) 0.7   (1.2 ) 10.8  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 155.2   $ 187.6   $ 525.5   $ 561.4  
 
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.77   $ 0.93   $ 2.59   $ 2.77  
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.77   $ 0.92   $ 2.59   $ 2.77  
 
Weighted Average Shares – Diluted 201.7 202.7 202.6 202.6
Dividends Declared per Share $ 0.4125 $ 0.3750 $ 1.2375 $ 1.1250
 

(a) The numerator for basic and diluted earnings per share is net earnings attributable to shareholders. Net earnings has been reduced by dividends and undistributed earnings attributable to unvested share based incentive plan awards. The denominator for basic earnings per share is the weighted-average shares outstanding during the period. The denominator for diluted earnings per share is the weighted-average shares outstanding adjusted for the effect of dilutive stock options and performance share awards.

   
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
September 30, 2015 December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,363.5 $ 1,297.7
Receivables—net of allowances of $6.5 and $9.6, respectively 368.9 387.8
Inventories 518.6 555.5
Deferred Income Taxes—net of valuation allowance 77.9 86.8
Income Taxes Receivable 37.2 7.7
Prepaid Expenses and Other Assets 69.1   82.6  
Total Current Assets 2,435.2 2,418.1
Property, Plant, and Equipment—net 933.2 912.7
Goodwill 147.0 162.7
Other Intangible Assets—net 65.0 75.4
Deferred Income Taxes—net of valuation allowance 47.9 65.1
Other Assets 149.6   142.5  
TOTAL $ 3,777.9   $ 3,776.5  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings $ 1.5 $ 4.1
Accounts Payable 450.1 512.3
Dividends Payable 83.0 76.6
Accrued Expenses and Other Liabilities 198.1 203.7
Accrued Rebates and Returns 368.8 329.1
Deferred Income—current 20.9 34.3
Income Taxes—payable and deferred 71.2   46.4  
Total Current Liabilities 1,193.6 1,206.5
Long-Term Debt 1,839.3 1,503.9
Deferred Income Taxes—noncurrent 10.3 12.4
Pension and Other Post-employment Liabilities 136.5 211.1
Other Liabilities - noncurrent 206.0   192.8  
Total Liabilities 3,385.7 3,126.7
COMMITMENTS AND CONTINGENCIES
 
REDEEMABLE NONCONTROLLING INTEREST 66.0
 
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 207.7 and 207.2 issued, respectively 2.1 2.1
Additional Paid-in/(Distributed) Capital (572.3 ) (641.3 )
Retained Earnings 2,026.4 1,775.0
Treasury Stock—at cost (799.6 ) (362.6 )
Accumulated Other Comprehensive Loss (305.1 ) (198.9 )
Total Shareholders’ Equity 351.5 574.3
Noncontrolling Interests 40.7   9.5  
Total Equity 392.2   583.8  
TOTAL $ 3,777.9   $ 3,776.5  
 
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
 
Nine Months Ended September 30,
2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 524.3 $ 572.2
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization 73.4 67.8
Other 63.1 30.2
Changes in Assets and Liabilities 34.7 (56.4 )
Payments for Settlement of Interest Rate Forward Swaps (45.0 )
Pension and Other Post-employment Benefit Contributions (86.6 ) (4.2 )
Net Cash Provided by Operating Activities 608.9 564.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (125.2 ) (144.0 )
Sale of Property, Plant and Equipment 0.4 0.2
Proceeds from/(Investment in) Other Companies   4.0  
Net Cash Used in Investing Activities (124.8 ) (139.8 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings 1.5 3.2
Repayments of Short-term Borrowings (4.0 ) (3.5 )
Repayments of Notes Payable (500.0 )
Payments of Dividends (243.6 ) (220.7 )
Purchases of Treasury Stock (437.0 ) (49.7 )
Long-term Notes, net of original issue discounts and expenses paid 492.3
Long-term Revolver Borrowings 322.0
Stock-based Compensation related Proceeds and Excess Tax Benefits 24.0 27.3
Stock-based Compensation Tax withholdings (11.3 ) (7.9 )
Purchase of Trading Securities (16.2 )
Sale of Trading Securities 21.7
Purchase of Redeemable Shares (24.2 )
Distributions to Noncontrolling Interests (6.9 ) (4.4 )
Net Cash Used in Financing Activities (374.0 ) (263.4 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents (44.3 ) (17.0 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 65.8   144.4  
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,297.7   1,050.8  
End of Period $ 1,363.5   $ 1,195.2  
   

MEAD JOHNSON NUTRITION COMPANY

RECONCILIATION OF NON-GAAP TO GAAP RESULTS

(Dollars in millions, except per share data)

(UNAUDITED)

 

This news release contains non-GAAP financial measures, which may include non-GAAP net sales, gross profit, certain components of operating expenses including selling, general and administrative, research and development and other (income)/expenses net, EBIT, earnings and earnings per share information. The items included in GAAP measures, but excluded for the purpose of determining the above listed non-GAAP financial measures, include significant income/expenses not indicative of underlying operating results, including the related tax effect. The above listed non-GAAP measures represent an indication of the company’s underlying operating results and are intended to enhance an investor’s overall understanding of the company’s financial performance. In addition, this information is among the primary indicators the company uses as a basis for evaluating company performance, setting incentive compensation targets and planning and forecasting of future periods. This information is not intended to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Tables that reconcile non-GAAP to GAAP disclosure follow.

 
Three Months Ended September 30, 2015   Three Months Ended September 30, 2014
  Specified Items (a)     Specified Items (a)  
Mark-to-   Mark-to-  
As Market All As As Market All

As

Reported Pension

Other (b)

Adjusted     Reported Pension

Other (b)

Adjusted

NET SALES $ 977.5 $ $ $ 977.5 $ 1,090.7 $ $ $ 1,090.7
Cost of Products Sold 346.8   (3.9 )   342.9     437.9   (3.2 )   434.7  
GROSS PROFIT 630.7 3.9 634.6 652.8 3.2 656.0
GROSS MARGIN % 64.5 % 0.4 % % 64.9 % 59.9 % 0.2 % % 60.1 %
 
Operating Expenses:
Selling, General and Administrative 216.1 (6.3 ) (0.6 ) 209.2 240.2 (5.2 ) (2.7 ) 232.3
Advertising and Promotion 156.1 156.1 158.9 158.9
Research and Development 26.3 (1.2 ) 25.1 28.7 (0.9 ) 27.8
Other (Income)/Expenses – net 6.2     (1.0 ) 5.2     (17.6 )   8.6   (9.0 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 226.0 11.4 1.6 239.0 242.6 9.3 (5.9 ) 246.0
EBIT as a % of Sales 23.1 % 1.2 % 0.2 % 24.5 % 22.2 % 0.9 % (0.5 )% 22.6 %
 
Interest Expense – net 14.8       14.8     18.3       18.3  
EARNINGS BEFORE INCOME TAXES 211.2 11.4 1.6 224.2 224.3 9.3 (5.9 ) 227.7
 
Provision for Income Taxes 56.6   4.0   2.4   63.0     36.0   3.3   (0.2 ) 39.1  
Effective Tax Rate 26.8 % 0.4 % 0.9 % 28.1 % 16.0 % 0.8 % 0.4 % 17.2 %
 
NET EARNINGS 154.6 7.4 (0.8 ) 161.2 188.3 6.0 (5.7 ) 188.6
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests (0.6 )     (0.6 )   0.7       0.7  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 155.2   $ 7.4   $ (0.8 ) $ 161.8     $ 187.6   $ 6.0   $ (5.7 ) $ 187.9  
Earnings per Share– Diluted
Net Earnings Attributable to Shareholders $ 0.77   $ 0.04   $ (0.01 ) $ 0.80     $ 0.92   $ 0.03   $ (0.02 ) $ 0.93  
 

Certain figures do not sum due to rounding.

 

(a) All Specified Items are included in Corporate and Other.

(b) Specified Items include legal, settlement and related costs, severance and other expenses, a loss on marketable securities and a pension curtailment gain.

   
MEAD JOHNSON NUTRITION COMPANY
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
(Dollars in millions, except per share data)
(UNAUDITED)
 
Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014
  Specified Items (a)     Specified Items (a)  
Mark-to-     Mark-to-  
As Market Investigation All As As Market All As
Reported Pension Settlement

Other (b)

Adjusted   Reported Pension

Other (b)

Adjusted
NET SALES $ 3,104.3 $ $ 3,104.3 $ 3,315.1 $ $ $ 3,315.1
Cost of Products Sold 1,096.7   (3.4 )     1,093.3     1,270.4   (5.7 )   1,264.7  
GROSS PROFIT 2,007.6 3.4 2,011.0 2,044.7 5.7 2,050.4
GROSS MARGIN % 64.7 % 0.1 % % % 64.8 % 61.7 % 0.2 % % 61.9 %
 
Operating Expenses:
Selling, General and Administrative 679.5 (5.5 ) (1.9 ) 672.1 715.4 (9.1 ) (13.1 ) 693.2
Advertising and Promotion 490.7 490.7 489.2 489.2
Research and Development 79.9 (1.0 ) 78.9 82.5 (1.6 ) 80.9
Other (Income)/Expenses – net 17.1     (12.0 ) 3.0   8.1     (21.1 )   8.6   (12.5 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 740.4 9.9 12.0 (1.1 ) 761.2 778.7 16.4 4.5 799.6
EBIT as a % of Sales 23.9 % 0.3 % 0.4 % % 24.5 % 23.5 % 0.5 % 0.1 % 24.1 %
 
Interest Expense – net 42.5         42.5     46.0       46.0  
EARNINGS BEFORE INCOME TAXES 697.9 9.9 12.0 (1.1 ) 718.7 732.7 16.4 4.5 753.6
 
Provision for Income Taxes 173.6   3.5   3.1   0.6   180.8     160.5   5.7   3.4   169.6  
Effective Tax Rate 24.9 % 0.1 % 0.1 % % 25.2 % 21.9 % 0.3 % 0.3 % 22.5 %
 
NET EARNINGS 524.3 6.4 8.9 (1.7 ) 537.9 572.2 10.7 1.1 584.0
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests (1.2 )       (1.2 )   10.8       10.8  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 525.5   $ 6.4   $ 8.9   $ (1.7 ) $ 539.1     $ 561.4   $ 10.7   $ 1.1   $ 573.2  
Earnings per Share– Diluted
Net Earnings Attributable to Shareholders $ 2.59   $ 0.03   $ 0.03   $   $ 2.65   $ 2.77   $ 0.05   $   $ 2.82  
 

Certain figures do not sum due to rounding.

 

(a) All Specified Items are included in Corporate and Other.

(b) Specified Items include legal, settlement and related costs, severance and other expenses, a pension curtailment gain and a gain on marketable securities.

Source: Mead Johnson Nutrition Company

Mead Johnson Nutrition Company
Investors:
Kathy MacDonald
(847) 832-2182
kathy.macdonald@mjn.com
or
Media:
Christopher Perille
(847) 832-2178
chris.perille@mjn.com

10/22/2015