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Mead Johnson Nutrition Delivers Earnings Per Share Above Guidance for Fourth Quarter and Full Year 2015; Provides 2016 Guidance

GLENVIEW, Ill.--(BUSINESS WIRE)--Jan. 28, 2016-- Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial results for the quarter and year ended December 31, 2015.

“I am pleased with the sequential improvements in our underlying business since our last earnings call, despite a challenging operating environment across many of the emerging markets," said Kasper Jakobsen, Chief Executive Officer. "Our two biggest businesses in China and the United States both posted sales above the levels experienced in the third quarter. I am also pleased that our Fuel for Growth initiative and our focus on operating expenses allowed us to deliver earnings per share above expectations within the fourth quarter."

Highlights are as follows:

(1) Fourth quarter sales were down 1% from the third quarter on a reported basis, and flat on a constant dollar basis, compared to the third quarter. Excluding the impact of sales in Venezuela, fourth quarter sales on a constant dollar basis increased 1% compared to the third quarter.

(2) Constant dollar figures exclude the impact of changes in foreign currency exchange rates and are reconciled in the tables in the body of this earnings release. Non-GAAP or as adjusted results exclude Specified Items. For a description of Specified Items, and a reconciliation of non-GAAP to GAAP, see the schedules titled “Reconciliation of Non-GAAP to GAAP Results.”

     
Fourth Quarter 2015
(Dollars in Millions)
(UNAUDITED)
 
Three Months Ended December 31, % Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 468.0 48 % $ 548.6 50 % (15 )% (10 )% (7 )% (3 )% (5 )%
Latin America 169.8 18 % 207.8 19 % (18 )% (4 )% (9 )% 5 % (14 )%
North America/Europe 329.2   34 % 337.8   31 % (3 )% % 1 % (1 )% (3 )%
Net Sales $ 967.0   100 % $ 1,094.2   100 % (12 )% (6 )% (5 )% (1 )% (6 )%
 
 
Three Months Ended December 31,
Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

 

%
Change

Asia $ 139.9 30 % $ 195.3 36 % (28 )%
Latin America 34.2 20 % 46.4 22 % (26 )%
North America/Europe 96.9 29 % 90.1 27 % 8 %
Corporate and Other (75.2 ) (122.2 ) 38 %
EBIT as reported 195.8   20 % 209.6   19 % (7 )%
Specified Items 23.8 42.4
Impact of F/X 25.5    
EBIT as adjusted $ 245.1   $ 252.0   (3 )%
 
     
Full Year 2015
(Dollars in Millions)
(UNAUDITED)
 

Years Ended December 31,

% Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 2,039.0 50% $ 2,278.4 52 % (11 )% (8 )% (6 )% (2 )% (3 )%
Latin America 757.1 19% 867.5 20 % (13 )% 3 % (4 )% 7 % (16 )%
North America/Europe 1,275.2   31% 1,263.4   28 % 1 % 4 % 1 % 3 % (3 )%
Net Sales $ 4,071.3   100% $ 4,409.3   100 % (8 )% (2 )% (3 )% 1 % (6 )%
 
 

Years Ended December 31,

Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

 

%
Change

Asia $ 682.0 33 % $ 818.7 36 % (17 )%
Latin America 175.2 23 % 199.0 23 % (12 )%
North America/Europe 361.8 28 % 291.0 23 % 24 %
Corporate and Other (282.8 ) (320.4 ) 12 %
EBIT as reported 936.2   23 % 988.3   22 % (5 )%
Specified Items 44.6 63.3
Impact of F/X 67.5    
EBIT as adjusted $ 1,048.3   $ 1,051.6   %
 

Cash Flow Items and Share Repurchases

Outlook for 2016

The company announced full year guidance for 2016. It expects full year constant dollar sales to be in a range of 0% to 2% above 2015 and non-GAAP EPS in the range of $3.48 to $3.60 based on current exchange rates.

“As discussed during our Investor Day in October of last year we view 2016 as a year of transition as we invest heavily in reshaping our portfolio in China and boost investment in new channels there. We expect modest, single digit EPS growth as a strengthening dollar will continue to challenge the translation of our results. To help investors better understand our underlying performance we will provide constant dollar profit measures through the year,” said Kasper Jakobsen, Chief Executive Officer. He added, “We expect sales growth to accelerate in the second half of the year reflecting the phasing of growth initiatives and investments. Our Fuel for Growth initiative is a critical element of our strategy to help offset the impact of foreign exchange and protect funding for new brand introductions.”

The company expects to incur charges approximating $25 to $30 million associated with the Fuel for Growth program in 2016. Specified Items including charges related to Fuel for Growth are expected to be approximately $0.12 per share. Therefore GAAP EPS is expected to be in the range of $3.36 to $3.48, excluding mark-to-market pension adjustments which cannot be estimated. EPS guidance includes an estimated adverse impact of current exchange rates as of January 2016, which is expected to be approximately $0.40 per share.

Conference Call Scheduled

Mead Johnson will host a conference call at 8:30 a.m. U.S. Central Time, during which company executives will review the financial results for the fourth quarter and full year 2015. The call will be broadcast with accompanying slides over the Internet at http://investors.meadjohnson.com. 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. A replay of the conference call will be available through 11:30 p.m. U.S. Central Time Sunday, March 13, 2016, by calling 855-859-2056, or outside of North America by calling +1-404-537-3406, passcode: 9288784. 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
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
Three Months Ended

Years Ended

December 31, December 31,
2015   2014 2015   2014
NET SALES $ 967.0 $ 1,094.2 $ 4,071.3 $ 4,409.3
Cost of Products Sold 358.6   430.2   1,455.3   1,700.6  
GROSS PROFIT 608.4 664.0 2,616.0 2,708.7
Operating Expenses:
Selling, General and Administrative 211.1 263.5 890.6 978.9
Advertising and Promotion 151.1 149.5 641.8 638.7
Research and Development 28.5 32.6 108.4 115.1
Other (Income)/Expenses–net 21.9   8.8   39.0   (12.3 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 195.8 209.6 936.2 988.3
 
Interest Expense—net 22.5   14.3   65.0   60.3  
EARNINGS BEFORE INCOME TAXES 173.3 195.3 871.2 928.0
 
Provision for Income Taxes 42.3   38.7   215.9   199.2  
NET EARNINGS 131.0 156.6 655.3 728.8
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 3.0   (1.8 ) 1.8   9.0  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 128.0   $ 158.4   $ 653.5   $ 719.8  
 
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.67   $ 0.78   $ 3.28   $ 3.55  
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.67   $ 0.78   $ 3.27   $ 3.54  
 
Weighted Average Shares–Diluted 189.8 202.9 199.4 202.7
Dividends Declared per Share $ 0.41 $ 0.38 $ 1.65 $ 1.50
 

(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.

When aggregated, EPS for the four quarters of 2015 are not equal to the full year EPS figure due to the variability of quarterly earnings and the timing of share repurchases.

   
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
December 31, 2015 December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,701.4 $ 1,297.7
Receivables—net of allowances of $5.4 and $9.6, respectively 342.5 387.8
Inventories 484.9 555.5
Income Taxes Receivable 13.2 7.7
Prepaid Expenses and Other Assets 60.4   82.6  
Total Current Assets 2,602.4 2,331.3
Property, Plant, and Equipment—net 964.0 912.7
Goodwill 126.0 162.7
Other Intangible Assets—net 54.9 75.4
Deferred Income Taxes—net of valuation allowance 118.5 150.4
Other Assets 132.3   131.3  
TOTAL $ 3,998.1   $ 3,763.8  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings $ 3.0 $ 4.1
Accounts Payable 481.5 512.3
Dividends Payable 77.8 76.6
Accrued Expenses 213.0 203.7
Accrued Rebates and Returns 376.8 329.1
Deferred Income—current 35.5 34.3
Income Taxes Payable 65.7   45.2  
Total Current Liabilities 1,253.3 1,205.3
Long-Term Debt 2,981.0 1,492.8
Deferred Income Taxes—noncurrent 8.7 12.0
Pension and Other Post-employment Liabilities 132.4 211.1
Other Liabilities - noncurrent 215.2   192.8  
Total Liabilities 4,590.6 3,114.0
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST 66.0
 
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 191.4 and 207.2 issued, respectively 1.9 2.1
Additional Paid-in/(Distributed) Capital (564.2 ) (641.3 )
Retained Earnings 640.4 1,775.0
Treasury Stock—at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (347.8 ) (198.9 )
Total Shareholders’ Equity/(Deficit) (632.3 ) 574.3
Noncontrolling Interests 39.8   9.5  
Total Equity/(Deficit) (592.5 ) 583.8  
TOTAL $ 3,998.1   $ 3,763.8  
 
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
 

Years Ended December 31,

2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 655.3 $ 728.8
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization 99.1 91.6
Other 66.5 77.2
Changes in Assets and Liabilities 168.4 (54.0 )
Payments for Settlement of Interest Rate Forward Swaps (45.0 )
Pension and Other Post-employment Benefit Contributions (90.1 ) (5.2 )
Net Cash Provided by Operating Activities 899.2 793.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures (173.7 ) (186.6 )
Proceeds from Sale of Property, Plant and Equipment 0.5 0.2
Proceeds from/(Investment in) Other Companies   4.0  
Net Cash Used in Investing Activities (173.2 ) (182.4 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings 1,003.0 3.2
Repayments of Short-term Borrowings (1,002.9 ) (0.6 )
Proceeds from Issuance of Long-term Notes, net of original issue discounts and expenses paid 1,499.0 492.0
Repayments of Notes Payable (500.0 )
Proceeds from Long-term Revolver Borrowings, net of original issue discount and expenses paid 446.0
Repayment of Long-term Revolver Borrowings (446.0 )
Payments of Dividends (326.0 ) (296.6 )
Stock-based-compensation-related Proceeds and Excess Tax Benefits 25.4 46.2
Stock-based Compensation Tax Withholdings (11.4 ) (7.9 )
Payments for Repurchase of Common Stock (1,437.0 ) (54.1 )
Purchase of Redeemable Shares (24.2 )
Purchase of Trading Securities (16.2 )
Sale of Trading Securities 21.7
Distributions to Noncontrolling Interests (6.9 ) (7.7 )
Net Cash Used in Financing Activities (275.5 ) (325.5 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents (46.8 ) (38.6 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 403.7   246.9  
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,297.7   1,050.8  
End of Period $ 1,701.4   $ 1,297.7  
 

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, 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 and, at times, the impact of foreign exchange. 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 and ability to compare the company’s performance to that of its peer companies. 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 and appear elsewhere in this presentation.

   
Three Months Ended December 31, 2015 Three Months Ended December 31, 2014
  Specified Items (a)     Specified Items (a)  
Mark-to-   Fuel   Mark-to-  
As Market For All As As Market All As
Reported Pension Growth

Other(b)

Adjusted Reported Pension

Other(b)

Adjusted
NET SALES $ 967.0 $ $ $ $ 967.0 $1,094.2 $ $ $ 1,094.2
Cost of Products Sold 358.6   0.4   (10.3 )   348.7   430.2   (13.4 )   416.8  
GROSS PROFIT 608.4 (0.4 ) 10.3 618.3 664.0 13.4 677.4
GROSS MARGIN % 62.9 % (0.1 )% 1.0 % % 63.9 % 60.7 % 1.2 % % 61.9 %
 
Operating Expenses:
Selling, General and Administrative 211.1 1.1 (0.4 ) (0.1 ) 211.7 263.5 (23.1 ) (0.7 ) 239.7
Advertising and Promotion 151.1 151.1 149.5 149.5
Research and Development 28.5 0.2 28.7 32.6 (4.0 ) 28.6
Other (Income)/Expenses – net 21.9     (14.4 ) (0.3 ) 7.2   8.8     (1.2 ) 7.6  
EARNINGS BEFORE INTEREST AND INCOME TAXES 195.8 (1.7 ) 25.1 0.4 219.6 209.6 40.5 1.9 252.0
EBIT as a % of Sales 20.2 % (0.2 )% 2.6 % % 22.7 % 19.2 % 3.7 % 0.2 % 23.0 %
 
Interest Expense – net 22.5         22.5   14.3       14.3  
EARNINGS BEFORE INCOME TAXES 173.3 (1.7 ) 25.1 0.4 197.1 195.3 40.5 1.9 237.7
 
Provision for Income Taxes 42.3   (0.6 ) 4.8   (0.2 ) 46.3   38.7   14.3   0.3     53.3  
Effective Tax Rate 24.4 % (0.1 )% (0.7 )% (0.1 )% 23.5 % 19.8 % 2.7 % (0.1 )% 22.4 %
 
NET EARNINGS 131.0 (1.1 ) 20.3 0.6 150.8 156.6 26.2 1.6 184.4
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 3.0         3.0   (1.8 )     (1.8 )
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 128.0   $ (1.1 ) $ 20.3   $ 0.6   $ 147.8   $158.4   $ 26.2   $ 1.6   $ 186.2  
Earnings per Share– Diluted
Net Earnings Attributable to Shareholders $ 0.67   $ (0.01 ) $ 0.11     $   $ 0.78   $0.78   $ 0.13   $ 0.01   $ 0.92  
 
Reconciliation of Reported Quarterly Sequential Sales Growth
Third Quarter 2015 Sales   $ 977.5
Fourth Quarter 2015 Sales 967.0  
Percentage Change in Reported Sales (1 )%
Less: Impact of Foreign Exchange (1 )%
Less: Impact of Venezuela (1 )%
Percentage Change in Sales in Constant Dollars Excluding the Impact of Venezuela 1 %
 

Certain figures do not sum due to rounding.

When aggregated, EPS for the four quarters of 2015 are not equal to the full year EPS figure due to the variability of quarterly earnings and the timing of share repurchases.

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

(b) All Other include legal, settlement and related costs, severance and other expenses, and marketable securities.

   
MEAD JOHNSON NUTRITION COMPANY
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
(Dollars in millions, except per share data)
(UNAUDITED)
 
Year Ended December 31, 2015 Year Ended December 31, 2014
  Specified Items (a)     Specified Items (a)  
      Mark-to-  
Market
Mark-to- Fuel and
As Market Investigation For All As As Other All As
Reported Pension Settlement Growth

Other(b)

Adjusted Reported Pension

Other(b)

Adjusted
NET SALES $ 4,071.3 4,071.3 4,409.3 4,409.3
Cost of Products Sold 1,455.3   (3.0 )   (10.3 )   1,442.0   1,700.6   (19.1 )   1,681.5  
GROSS PROFIT 2,616.0 3.0 10.3 2,629.3 2,708.7 19.1 2,727.8
GROSS MARGIN % 64.3 % 0.1 % % 1.0 % % 64.6 % 61.4 % 0.4 % % 61.9 %
 
Operating Expenses:
Selling, General and Administrative 890.6 (4.4 ) (0.4 ) (2.0 ) 883.8 978.9 (32.2 ) (13.8 ) 932.9
Advertising and Promotion 641.8 641.8 638.7 638.7
Research and Development 108.4 (0.8 ) 107.6 115.1 (5.6 ) 109.5
Other (Income)/Expenses – net 39.0     (12.0 ) (14.4 ) 2.7   15.3   (12.3 ) 5.4   2.0   (4.9 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 936.2 8.2 12.0 25.1 (0.7 ) 980.8 988.3 51.5 11.8 1,051.6
EBIT as a % of Sales 23.0 % 0.2 % 0.3 % 2.6 % % 24.1 % 22.4 % 1.2 % 0.2 % 23.8 %
 
Interest Expense – net 65.0           65.0   60.3       60.3  
EARNINGS BEFORE INCOME TAXES 871.2 8.2 12.0 25.1 (0.7 ) 915.8 928.0 51.5 11.8 991.3
 
Provision for Income Taxes 215.9   2.9   3.1   4.8   0.4     227.1   199.2   20.0   3.7   222.9  
Effective Tax Rate 24.8 % 0.1 % % (0.2 )% 0.1 % 24.8 % 21.5 % 0.9 % 0.1 % 22.5 %
 
NET EARNINGS 655.3 5.3 8.9 20.3 (1.1 ) 688.7 728.8 31.5 8.1 768.4
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 1.8           1.8   9.0       9.0  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 653.5   $ 5.3   $ 8.9   $ 20.3   $ (1.1 ) $ 686.9   $ 719.8   $ 31.5   $ 8.1   $ 759.4  
Earnings per Share– Diluted                    
Net Earnings Attributable to Shareholders $ 3.27   $ 0.03   $ 0.04   $ 0.11   $ (0.01 ) $ 3.44   $ 3.54   $ 0.15   $ 0.05   $ 3.74  
 

Certain figures do not sum due to rounding.

When aggregated, EPS for the four quarters of 2015 are not equal to the full year EPS figure due to the variability of quarterly earnings and the timing of share repurchases.

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

(b) Specified Items include legal, settlement and related costs, severance and other expenses, and 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

1/28/2016