Mead Johnson Nutrition Reports Constant Dollar Sales Growth and Increased Earnings; Reaffirms 2015 Non-GAAP Guidance
“We had a solid start to 2015,” said Chief Executive Officer Kasper
Jakobsen, “considering that both our U.S. and
First Quarter Company Results
First quarter sales of $1,094.4 million were down from $1,113.3 million
in the prior year quarter. Constant dollar sales increased slightly more
than three percent, driven by pricing. In aggregate, volume was flat due
primarily to tough prior year comparisons in the U.S. and
Gross margin was 64.0 percent, up from 63.6 percent in the first quarter of 2014. Gross margin benefited from price increases and lower dairy input costs. In gross profit, the impact of Euro denominated manufacturing costs partially offset the adverse effect of foreign exchange to sales.
Investments in demand-generation activities, in reported dollars, decreased compared to the prior year quarter due to foreign exchange impacts and the timing of promotional campaigns. Earnings before interest and income taxes (“EBIT”) totaled $285.2 million in the first quarter of 2015, compared to $291.2 million for the comparative period in 2014.
The company’s effective tax rate (“ETR”) was 23.7 percent in the first quarter, compared to 25.5 percent in the prior year quarter. The lower ETR was primarily due to a favorable change in the geographic earnings mix.
Net earnings attributable to shareholders totaled $207.4 million, or $1.02 per diluted share, in the first quarter of 2015, compared to $202.4 million, or $1.00 per diluted share, in the prior year quarter. On a non-GAAP basis, net earnings attributable to shareholders totaled $222.2 million, or $1.09 per diluted share, for the first quarter of 2015, compared to $206.1 million, or $1.02 per diluted share, for the same quarter a year ago. Higher gross margins, lower operating expenses and the ETR were the main drivers of earnings growth.
(1) Constant dollar figures exclude the impact of changes in foreign currency exchange rates and Non-GAAP 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.”
First Quarter Segment Results
Demand-generation investments were below prior year, primarily due to the timing of expenditures. EBIT of $78.3 million increased from $66.1 million in the first quarter of 2014, primarily due to higher gross margins and lower investments.
Operating expenses decreased primarily due to foreign currency translation and transaction impacts, the timing of promotional spending and the absence of one-time expenses in the prior year. EBIT of $57.3 million, increased from $46.6 million for the same quarter a year ago, primarily from the aforementioned lower expenses.
Operating expenses were higher primarily due to inflationary cost
increases. Promotional spending for innovation and new product launches
in
Corporate and Other
Corporate and Other expenses were $81.9 million for the first quarter of
2015, up from $62.8 million in the first quarter of 2014 mainly due to
the
(2)
Cash Flow Items
Cash and cash equivalents improved by $136.2 million since
Outlook for 2015
“We reiterate our 2015 non-GAAP EPS in the range of $3.90 to $4.00,” Mr. Jakobsen said. “We anticipate revenue growth around 7% in constant dollars with growth largely in the second half of the year as new initiatives are launched.”
The company currently expects the impact of adverse foreign currency translation to be approximately five percent, leading to reported sales growth of approximately two percent. Specified Items are currently expected to be $0.11 per diluted share excluding any mark-to-market pension adjustments. As a result, full year GAAP EPS is expected to be in the range of $3.79 to $3.89.
Conference Call Scheduled
Mead Johnson will host a conference call at
Security analysts and investors wishing to participate by telephone
should call (877) 359-9508, pass code: Mead Johnson. Callers outside of
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
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
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.
MEAD JOHNSON NUTRITION COMPANY | |||||||
CONSOLIDATED STATEMENTS OF EARNINGS | |||||||
(Dollars and shares in millions, except per share data) | |||||||
(UNAUDITED) | |||||||
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
NET SALES | $ | 1,094.4 | $ | 1,113.3 | |||
Cost of Products Sold | 393.5 | 405.7 | |||||
GROSS PROFIT | 700.9 | 707.6 | |||||
Operating Expenses: | |||||||
Selling, General and Administrative | 233.2 | 232.9 | |||||
Advertising and Promotion | 144.4 | 155.7 | |||||
Research and Development | 25.9 | 27.1 | |||||
Other Expenses – net | 12.2 | 0.7 | |||||
EARNINGS BEFORE INTEREST AND INCOME TAXES | 285.2 | 291.2 | |||||
Interest Expense – net | 13.8 | 12.4 | |||||
EARNINGS BEFORE INCOME TAXES | 271.4 | 278.8 | |||||
Provision for Income Taxes | 64.3 | 71.0 | |||||
NET EARNINGS | 207.1 | 207.8 | |||||
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests | (0.3 | ) | 5.4 | ||||
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS | $ | 207.4 | $ | 202.4 | |||
Earnings per Share(a)– Basic | |||||||
Net Earnings Attributable to Shareholders | $ | 1.02 | $ | 1.00 | |||
Earnings per Share(a)– Diluted | |||||||
Net Earnings Attributable to Shareholders | $ | 1.02 | $ | 1.00 | |||
Weighted-average Shares – Diluted | 202.9 | 202.4 | |||||
Dividends Declared per Share | $ | 0.4125 | $ | 0.3750 |
(a) The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends and undistributed earnings attributable to unvested shares. 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 | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Dollars and shares in millions, except per share data) | ||||||||
(UNAUDITED) | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and Cash Equivalents | $ | 1,433.9 | $ | 1,297.7 | ||||
Receivables—net of allowances of $7.5 and $9.6 respectively | 381.9 | 387.8 | ||||||
Inventories | 549.9 | 555.5 | ||||||
Deferred Income Taxes – net of valuation allowance | 78.5 | 86.8 | ||||||
Income Taxes Receivable | 14.5 | 7.7 | ||||||
Prepaid Expenses and Other Assets | 80.2 | 82.6 | ||||||
Total Current Assets | 2,538.9 | 2,418.1 | ||||||
Property, Plant, and Equipment – net | 899.2 | 912.7 | ||||||
Goodwill | 159.3 | 162.7 | ||||||
Other Intangible Assets – net | 71.7 | 75.4 | ||||||
Deferred Income Taxes – net of valuation allowance | 64.1 | 65.1 | ||||||
Other Assets | 151.5 | 142.5 | ||||||
TOTAL | $ | 3,884.7 | $ | 3,776.5 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Short-term Borrowings | $ | — | $ | 4.1 | ||||
Accounts Payable | 494.3 | 512.3 | ||||||
Dividends Payable | 84.4 | 76.6 | ||||||
Accrued Expenses | 213.0 | 203.7 | ||||||
Accrued Rebates and Returns | 338.4 | 329.1 | ||||||
Deferred Income – current | 14.8 | 34.3 | ||||||
Income Taxes – payable and deferred | 55.1 | 46.4 | ||||||
Total Current Liabilities | 1,200.0 | 1,206.5 | ||||||
Long-Term Debt | 1,511.9 | 1,503.9 | ||||||
Deferred Income Taxes – noncurrent | 11.2 | 12.4 | ||||||
Pension and Other Post-employment Liabilities | 210.5 | 211.1 | ||||||
Other Liabilities | 202.9 | 192.8 | ||||||
Total Liabilities | 3,136.5 | 3,126.7 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
REDEEMABLE NONCONTROLLING INTEREST | 71.8 | 66.0 | ||||||
EQUITY | ||||||||
Shareholders’ Equity | ||||||||
Common Stock, $0.01 par value: 3,000 authorized, 207.5 and 207.2 issued, respectively | 2.1 | 2.1 | ||||||
Additional Paid-in/(Distributed) Capital | (625.5 | ) | (641.3 | ) | ||||
Retained Earnings | 1,885.3 | 1,775.0 | ||||||
Treasury Stock – at cost | (362.6 | ) | (362.6 | ) | ||||
Accumulated Other Comprehensive Loss | (231.8 | ) | (198.9 | ) | ||||
Total Shareholders’ Equity | 667.5 | 574.3 | ||||||
Noncontrolling Interests | 8.9 | 9.5 | ||||||
Total Equity | 676.4 | 583.8 | ||||||
TOTAL | $ | 3,884.7 | $ | 3,776.5 |
MEAD JOHNSON NUTRITION COMPANY | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Dollars in millions) | ||||||||
(UNAUDITED) | ||||||||
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Earnings | $ | 207.1 | $ | 207.8 | ||||
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 24.1 | 22.0 | ||||||
Other | 22.9 | 26.7 | ||||||
Changes in Assets and Liabilities | 22.1 | (57.5 | ) | |||||
Pension and Other Post-employment Benefits Contributions | (1.7 | ) | (1.4 | ) | ||||
Net Cash Provided by Operating Activities | 274.5 | 197.6 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for Capital Expenditures | (46.1 | ) | (63.1 | ) | ||||
Proceeds from Sale of Property, Plant and Equipment | 0.2 | 0.4 | ||||||
Proceeds from/(Investment in) Other Companies | — | 4.0 | ||||||
Net Cash Used in Investing Activities | (45.9 | ) | (58.7 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from Short-term Borrowings | — | 0.1 | ||||||
Repayments of Short-term Borrowings | (4.0 | ) | (0.3 | ) | ||||
Payments of Dividends | (76.0 | ) | (68.8 | ) | ||||
Stock-Based Compensation Related Proceeds and Excess Tax Benefits | 6.9 | 11.6 | ||||||
Purchases of Treasury Stock | — | (22.5 | ) | |||||
Stock-Based Compensation Related Tax Withholdings (1) | (7.2 | ) | (7.7 | ) | ||||
Net Cash Used in Financing Activities | (80.3 | ) | (87.6 | ) | ||||
Effects of Changes in Exchange Rates on Cash and Cash Equivalents | (12.1 | ) | (12.1 | ) | ||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 136.2 | 39.2 | ||||||
CASH AND CASH EQUIVALENTS: | ||||||||
Beginning of Period | 1,297.7 | 1,050.8 | ||||||
End of Period | $ | 1,433.9 | $ | 1,090.0 |
(1) For a discussion of this new line item, see Note 2 to the financial statements included in the Company's Quarterly Report on Form 10-Q for the first quarter of 2015.
MEAD JOHNSON NUTRITION COMPANY |
SUPPLEMENTAL FINANCIAL INFORMATION |
(Dollars in millions) |
(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 March 31, | % Change | % Change Due to | |||||||||||||||||||||||||||
% of | % of | Constant | Foreign | ||||||||||||||||||||||||||
Net Sales | 2015 | Total | 2014 | Total | Reported | Dollar | Volume | Price/Mix | Exchange | ||||||||||||||||||||
Asia | $ | 581.0 | 53 | % | $ | 592.7 | 53 | % | (2 | )% | — | % | (1 | )% | 1 | % | (2 | )% | |||||||||||
Latin America | 204.4 | 19 | % | 212.4 | 19 | % | (4 | )% | 13 | % | 3 | % | 10 | % | (17 | )% | |||||||||||||
North America/Europe | 309.0 | 28 | % | 308.2 | 28 | % | — | % | 3 | % | — | % | 3 | % | (3 | )% | |||||||||||||
Net Sales | $ | 1,094.4 | 100 | % | $ | 1,113.3 | 100 | % | (2 | )% | 3 | % | — | % | 3 | % | (5 | )% | |||||||||||
Earnings Before Interest and Income Taxes (EBIT) | 2015 |
EBIT |
2014 |
EBIT |
% Change | ||||||||||||||||||||||||
Asia | $ | 231.5 | 40 | % | $ | 241.3 | 41 | % | (4 | )% | |||||||||||||||||||
Latin America | 57.3 | 28 | % | 46.6 | 22 | % | 23 | % | |||||||||||||||||||||
North America/Europe | 78.3 | 25 | % | 66.1 | 21 | % | 18 | % | |||||||||||||||||||||
Corporate and Other | (81.9 | ) | (62.8 | ) | (30 | )% | |||||||||||||||||||||||
EBIT | $ | 285.2 | 26 | % | $ | 291.2 | 26 | % | (2 | )% |
MEAD JOHNSON NUTRITION COMPANY | ||||||||||||||||||||||||||||||||||||
RECONCILIATION OF NON-GAAP TO GAAP RESULTS | ||||||||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2015 | Three Months Ended March 31, 2014 | |||||||||||||||||||||||||||||||||||
Specified Items (a) | Specified Items (a) | |||||||||||||||||||||||||||||||||||
Legal, | Legal, | |||||||||||||||||||||||||||||||||||
|
Settlement | Severance | Settlement | Severance | ||||||||||||||||||||||||||||||||
Investigation | and Related | and Other | Non- | and Related | and Other | Non- | ||||||||||||||||||||||||||||||
GAAP | Accrual | Costs | Costs | GAAP | GAAP | Costs | Costs | GAAP | ||||||||||||||||||||||||||||
NET SALES | $ | 1,094.4 | $ | 1,094.4 | $ | 1,113.3 | $ | 1,113.3 | ||||||||||||||||||||||||||||
Cost of Products Sold | 393.5 | — | — | — | 393.5 | 405.7 | — | — | 405.7 | |||||||||||||||||||||||||||
GROSS PROFIT | 700.9 | — | — | — | 700.9 | 707.6 | — | — | 707.6 | |||||||||||||||||||||||||||
GROSS MARGIN % | 64.0 | % | — | % | — | % | — | % | 64.0 | % | 63.6 | % | — | % | — | % | 63.6 | % | ||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||||||
Selling, General and Administrative | 233.2 | — | (0.7 | ) | (0.1 | ) | 232.4 | 232.9 | (5.7 | ) | (0.1 | ) | 227.1 | |||||||||||||||||||||||
Advertising and Promotion | 144.4 | — | — | — | 144.4 | 155.7 | — | — | 155.7 | |||||||||||||||||||||||||||
Research and Development | 25.9 | — | — | — | 25.9 | 27.1 | — | — | 27.1 | |||||||||||||||||||||||||||
Other (Income)/Expenses – net | 12.2 | (12.0 | ) | — | (2.2 | ) | (2.0 | ) | 0.7 | — | — | 0.7 | ||||||||||||||||||||||||
EARNINGS BEFORE INTEREST AND INCOME TAXES | 285.2 | 12.0 | 0.7 | 2.3 | 300.2 | 291.2 | 5.7 | 0.1 | 297.0 | |||||||||||||||||||||||||||
EBIT as a % of Sales | 26.1 | % | 1.1 | % | 0.1 | % | 0.2 | % | 27.4 | % | 26.2 | % | 0.5 | % | — | % | 26.7 | % | ||||||||||||||||||
Interest Expense – net | 13.8 | — | — | — | 13.8 | 12.4 | — | — | 12.4 | |||||||||||||||||||||||||||
EARNINGS BEFORE INCOME TAXES | 271.4 | 12.0 | 0.7 | 2.3 | 286.4 | 278.8 | 5.7 | 0.1 | 284.6 | |||||||||||||||||||||||||||
Provision for Income Taxes | 64.3 | — | 0.2 | — | 64.5 | 71.0 | 2.1 | — | 73.1 | |||||||||||||||||||||||||||
Effective Tax Rate | 23.7 | % | (1.0 | )% | — | % | (0.2 | )% | 22.5 | % | 25.5 | % | 0.2 | % | — | % | 25.7 | % | ||||||||||||||||||
NET EARNINGS | 207.1 | 12.0 | 0.5 | 2.3 | 221.9 | 207.8 | 3.6 | 0.1 | 211.5 | |||||||||||||||||||||||||||
Less Net Earnings Attributable to Noncontrolling Interests | (0.3 | ) | — | — | — | (0.3 | ) | 5.4 | — | — | 5.4 | |||||||||||||||||||||||||
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS | $ | 207.4 | $ | 12.0 | $ | 0.5 | $ | 2.3 | $ | 222.2 | $ | 202.4 | $ | 3.6 | $ | 0.1 | $ | 206.1 | ||||||||||||||||||
Earnings per Share– Diluted | ||||||||||||||||||||||||||||||||||||
Net Earnings Attributable to Shareholders | $ | 1.02 | $ | 0.06 | $ | — | $ | 0.01 | $ | 1.09 | $ | 1.00 | $ | 0.02 | $ | — | $ | 1.02 |
Certain figures do not sum due to rounding.
(a) All Specified Items are included in Corporate and Other.
Source:
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
4/23/2015