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Mead Johnson Nutrition Reports Second Quarter and First Half 2016 Results; Reaffirms 2016 EPS Guidance; Announces an Expansion of Cost Productivity Program

GLENVIEW, Ill.--(BUSINESS WIRE)--Jul. 28, 2016-- Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial results for the quarter and six months ended June 30, 2016.

Highlights are as follows:

"As we move through this year, I am pleased that we continue to deliver against our profit objectives despite a challenging global operating environment," said Kasper Jakobsen, Chief Executive Officer. "We are making good progress with our portfolio and channel transformation in China despite near-term challenges. We are aligning the organization behind more ambitious operating cost reductions in support of both our growth and value creation strategies."

(1) 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 and in the schedules titled “Reconciliation of non-GAAP to GAAP Results.” Non-GAAP 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.”

 
Second Quarter 2016
(Dollars in Millions)
(UNAUDITED)
 
    Three Months Ended June 30,     % Change     % Change Due to

Net Sales

2016  

% of
Total

  2015  

% of
Total

Reported  

Constant
Dollar

Volume   Price/Mix  

Foreign
Exchange

Asia $456.2 48% $513.2 50% (11)% (7)% (5)% (2)% (4)%
Latin America 166.5 18% 198.4 19% (16)% (3)% (12)% 9% (13)%
North America/Europe 318.8 34% 320.8 31% (1)% —% (1)% 1% (1)%
Net Sales $941.5 100% $1,032.4 100% (9)% (4)% (5)% 1% (5)%
 
             
Three Months Ended June 30, % Change    

% Change
Due to

Earnings Before Interest and Income Taxes (EBIT) 2016

% of
Sales

2015 % of Sales Reported  

Constant
Dollar

Foreign
Exchange

Asia $137.0 30% $156.4 30% (12)% (4)% (8)%
Latin America 36.2 22% 44.8 23% (19)% (7)% (12)%
North America/Europe 99.2 31% 85.3 27% 16% 21% (5)%
Corporate and Other (a) (58.0) (57.3) (1)%

 

 

GAAP EBIT 214.4 23% 229.2 22% (6)% —% (6)%
Non-GAAP EBIT $230.2 $222.0 4% 10% (6)%
 

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

 
 
Six Months 2016
(Dollars in Millions)
(UNAUDITED)
 
    Six Months Ended June 30,     % Change     % Change Due to
Net Sales 2016  

% of
Total

  2015  

% of
Total

Reported  

Constant
Dollar

Volume   Price/Mix  

Foreign
Exchange

Asia $ 956.8 50% $ 1,094.2 51% (13)% (9)% (8)% (1)% (4)%
Latin America 326.8 17% 402.8 19% (19)% (4)% (12)% 8% (15)%
North America/Europe 620.0   33% 629.8   30% (2)% (1)% (1)% —% (1)%
Net Sales $ 1,903.6   100% $ 2,126.8   100% (10)% (5)% (6)% 1% (5)%
 
           
% Change
Six Months Ended June 30, % Change Due to
Earnings Before Interest and Income Taxes (EBIT) 2016  

% of
Sales

  2015  

% of
Sales

Reported  

Constant
Dollar

Foreign
Exchange

Asia $306.1 32% $387.9 35% (21)% (15)% (6)%
Latin America 77.0 24% 102.1 25% (25)% (9)% (16)%
North America/Europe 181.2 29% 163.6 26% 11% 15% (4)%
Corporate and Other (a) (199.8) (139.2) (44)%

 

 

EBIT 364.5 19% 514.4 24% (29)% (21)% (8)%
Non-GAAP EBIT $474.5 $522.2 (9)% (1)% (8)%
 

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

 

Cash Flow Items and Liquidity

Outlook for 2016

The company has revised its net sales outlook and now expects full year net sales of 5% to 7% below the prior year on a reported basis and 0% to 2% below the prior year on a constant dollar basis. The revision is driven by increased customs processes at border points in China, lower-than-expected U.S. market share in the first half of the year, as well as increased trade investments in China.

The company reaffirms 2016 GAAP EPS guidance of $2.91 to $3.03 as improved gross margin and lower operating costs are expected to offset the impact of lower sales. GAAP EPS guidance is likely to be impacted by potentially significant future mark-to-market pension adjustments which cannot be estimated and are classified as a Specified Item. The company reaffirms non-GAAP EPS guidance of $3.48 to $3.60. Specified Items include charges related to Fuel for Growth and our Venezuela business. This guidance includes an estimated adverse impact of current exchange rates, which is now expected to be approximately $0.35 per share.

"We remain squarely focused on restoring topline growth as we move into the second half of the year," said Mr. Jakobsen. "Expected progress against the newly announced, more ambitious cost reduction target will help fund the investments we need to make and protect our value creation. Despite a challenging external environment, I am excited about the opportunities in front of us, and I remain confident in our ability to deliver against the strategy we communicated to investors late last year."

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 second quarter and first half of 2016. 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 11:00 p.m. U.S. Central Time Sunday, September 11, 2016, by calling 855-859-2056, or outside of North America by calling +1-404-537-3406, passcode: 43193043. 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 program, or participation in WIC(2); (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.

(2) 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 June 30,     Six Months Ended June 30,
2016   2015 2016   2015
NET SALES $ 941.5 $ 1,032.4 $ 1,903.6 $ 2,126.8
Cost of Products Sold 333.2   356.4   680.8   749.9  
GROSS PROFIT 608.3 676.0 1,222.8 1,376.9
Operating Expenses:
Selling, General and Administrative 206.7 230.2 405.6 463.4
Advertising and Promotion 166.0 190.2 317.8 334.6
Research and Development 26.4 27.7 51.8 53.6
Other (Income)/Expenses—net (5.2 ) (1.3 ) 83.1   10.9  
EARNINGS BEFORE INTEREST AND INCOME TAXES 214.4 229.2 364.5 514.4
 
Interest Expense—net 26.4   13.9   52.6   27.7  
EARNINGS BEFORE INCOME TAXES 188.0 215.3 311.9 486.7
 
Provision for Income Taxes 32.2   52.7   79.4   117.0  
NET EARNINGS 155.8 162.6 232.5 369.7
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 0.7   (0.3 ) 4.7   (0.6 )
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 155.1   $ 162.9   $ 227.8   $ 370.3  
 
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.83   $ 0.80   $ 1.22   $ 1.83  
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.83   $ 0.80   $ 1.21   $ 1.82  
 
Weighted Average Shares—Diluted 187.0 203.1 186.9 203.1
Dividends Declared per Share $ 0.4125 $ 0.4125 $ 0.8250 $ 0.8250

(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)
 
    June 30, 2016     December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,716.0 $ 1,701.4
Receivables—net of allowances of $5.3 and $5.4, respectively 359.5 342.5
Inventories 465.8 484.9
Income Taxes Receivable 13.0 13.2
Prepaid Expenses and Other Assets 65.6   60.4  
Total Current Assets 2,619.9 2,602.4
Property, Plant and Equipment—net 925.4 964.0
Goodwill 115.8 126.0
Other Intangible Assets—net 48.9 54.9
Deferred Income Taxes—net of valuation allowance 142.3 118.5
Other Assets 176.3   132.3  
TOTAL $ 4,028.6   $ 3,998.1  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings $ 3.8 $ 3.0
Accounts Payable 456.3 481.5
Dividends Payable 77.6 77.8
Accrued Expenses 193.6 213.0
Accrued Rebates and Returns 396.7 376.8
Deferred Income 10.3 35.5
Income Taxes Payable 22.2   65.7  
Total Current Liabilities 1,160.5 1,253.3
Long-Term Debt 3,021.9 2,981.0
Deferred Income Taxes 6.1 8.7
Pension and Other Post-employment Liabilities 149.4 132.4
Other Liabilities 210.1   215.2  
Total Liabilities 4,548.0 4,590.6
COMMITMENTS AND CONTINGENCIES
 
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 189.6 and 191.4 issued, respectively 1.9 1.9
Additional Paid-in/(Distributed) Capital (537.1 ) (564.2 )
Retained Earnings 709.8 640.4
Treasury Stock—at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (374.1 ) (347.8 )
Total Shareholders’ Equity/(Deficit) (562.1 ) (632.3 )
Noncontrolling Interests 42.7   39.8  
Total Equity/(Deficit) (519.4 ) (592.5 )
TOTAL $ 4,028.6   $ 3,998.1  
 
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
 
    Six Months Ended June 30,
2016     2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 232.5 $ 369.7
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization 49.3 48.8
Impairment of Long-Lived Assets 45.9
Other 38.4 26.3
Changes in Assets and Liabilities (88.1 ) 14.2
Pension and Other Post-employment Benefit Contributions (1.9 ) (2.5 )
Net Cash Provided by Operating Activities 276.1 456.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures (80.8 ) (80.0 )
Proceeds from Sale of Property, Plant and Equipment 0.2   0.4  
Net Cash Used in Investing Activities (80.6 ) (79.6 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings 1.3 1.0
Repayments of Short-term Borrowings (0.2 ) (4.0 )
Debt Issuance Costs (0.1 )
Payments of Dividends (154.8 ) (159.8 )
Stock-based Compensation related Proceeds and Excess Tax Benefits 9.6 19.7
Stock-based Compensation Tax Withholdings (3.8 ) (10.3 )
Purchase of Redeemable Shares (5.1 )
Purchase of Trading Securities (16.2 )
Distributions to Noncontrolling Interests (0.9 ) (6.9 )
Net Cash Used in Financing Activities (148.9 ) (181.6 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents (32.0 ) (17.9 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 14.6 177.4
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,701.4   1,297.7  
End of Period $ 1,716.0   $ 1,475.1  
 

Mead Johnson Nutrition Company
Financial Information (UNAUDITED)
Reconciliation of Non-GAAP to GAAP Results

This news release contains non-GAAP financial measures, each of which is listed in the tables below. The items included in GAAP measures, but excluded for the purpose of determining the 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 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 below.

Constant Dollar

Certain measures in this release are presented excluding the impact of foreign currency exchange (constant dollar). To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. The company believes that these constant dollar measures provide useful information to investors because they provide transparency to underlying performance by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given volatility in foreign currency exchange markets. The primary currencies which impact the company are: the Chinese renminbi, the Hong Kong dollar, the Mexican peso and the Philippine peso.

Specified Items

Non-GAAP measures presented within this release exclude Specified Items. The company considers Specified Items to be significant income/expense items as not indicative of underlying operating results, including the related tax effect.

Mead Johnson Nutrition Company
Financial Information (UNAUDITED)
Reconciliation of Non-GAAP to GAAP Results

 

Constant dollar consolidated gross sales

 
    Three Months Ended June 30,     % Change
    Foreign   Constant
Gross Sales 2016 2015 Reported Exchange Dollar
Total gross sales $ 1,304.3 $ 1,366.2 (5)% (5)% —%
 

Constant dollar net sales

 
    Three Months Ended    
June 30, % Change
    Foreign   Constant   Impact of   Excluding
Net Sales 2016 2015 Reported Exchange Dollar Venezuela Venezuela
Asia $ 456.2 $ 513.2 (11)% (4)% (7)%
Latin America 166.5 198.4 (16)% (13)% (3)% (7)% 4%
North America/Europe 318.8   320.8   (1)% (1)% —%
Net Sales $ 941.5   $ 1,032.4   (9)% (5)% (4)% (1)% (3)%
 
    Six Months Ended    
June 30, % Change
    Foreign   Constant   Impact of   Excluding
Net Sales 2016 2015 Reported Exchange Dollar Venezuela Venezuela
Asia $ 956.8 $ 1,094.2 (13)% (4)% (9)%
Latin America 326.8 402.8 (19)% (15)% (4)% (10)% 6%
North America/Europe 620.0   629.8   (2)% (1)% (1)%
Net Sales $ 1,903.6   $ 2,126.8   (10)% (5)% (5)% (1)% (4)%
 

Non-GAAP constant dollar gross margin

 
    Three Months Ended June 30,     Six Months Ended June 30,
2016   2015     2016   2015    
Gross   Gross Gross   Gross Gross   Gross Gross   Gross
Profit Margin Profit Margin Change Profit Margin Profit Margin Change
GAAP Gross Profit and Gross Margin $ 608.3 64.6 % $ 676.0 65.5 % (90 bps) $ 1,222.8 64.2 % $ 1,376.9 64.7 % (50 bps)
Pension Remeasurement (a) 4.5 0.5 % (0.5 ) (0.1 )% 6.6 0.3 % (0.5 ) %
Foreign currency impact 45.2   1.5 % 89.7   0.9 %
Non-GAAP Constant Dollar Gross Profit and Gross Margin $ 658.0 66.6 % $ 675.5 65.4 % 120 bps $ 1,319.1 65.5 % $ 1,376.4 64.7 % 80 bps
 

Non-GAAP constant dollar selling, general and administrative expenses

 
    Three Months Ended June 30,     Six Months Ended June 30,
2016   2015   Change 2016   2015   Change
GAAP SG&A $ 206.7 $ 230.2 (10 )% $ 405.6 $ 463.4 (12 )%
Pension Remeasurement (a) (7.3 ) 0.8 (10.7 ) 0.8
All Other (e) (0.5 ) (1.3 )
Foreign currency impact 9.5     22.3    
Non-GAAP Constant Dollar SG&A $ 208.9 $ 230.5 (9 )% $ 417.2 $ 462.9 (10 )%
 

Constant dollar segment EBIT

 
    Three Months Ended June 30,     % Change
        Foreign   Constant
Earnings Before Interest and Income Taxes (EBIT) 2016 2015 Reported Exchange Dollar
Asia $ 137.0 $ 156.4 (12)% (8)% (4)%
Latin America 36.2 44.8 (19)% (12)% (7)%
North America/Europe 99.2 85.3 16% (5)% 21%
 
 
 
    Six Months Ended June 30,     % Change
    Foreign   Constant
Earnings Before Interest and Income Taxes (EBIT) 2016 2015 Reported Exchange Dollar
Asia $ 306.1 $ 387.9 (21)% (6)% (15 )%
Latin America 77.0 102.1 (25)% (16)% (9 )%
North America/Europe 181.2 163.6 11% (4)% 15 %
 

Non-GAAP Corporate and other EBIT

 
    Three Months Ended June 30,    
Corporate and Other 2016   2015 % Change
EBIT $ (58.0 ) $ (57.3 ) (1)%
Pension Remeasurement (a) 13.1 (1.5 )
Fuel for Growth (b) 2.0
Venezuela (d) 0.2
All Other (e) 0.5   (5.7 )
Non-GAAP EBIT $ (42.2 ) $ (64.5 )

35%

 
    Six Months Ended June 30,    
Corporate and Other 2016     2015 % Change
EBIT $ (199.8 ) $ (139.2 ) (44)%
Pension Remeasurement (a) 19.2 (1.5 )
Investigation Accrual (c) 12.0
Fuel for Growth (b) 11.1
Venezuela (d) 78.4
All Other (e) 1.3   (2.7 )
Non-GAAP EBIT $ (89.8 ) $ (131.4 )

32%

 

Non-GAAP EBIT and constant dollar EBIT

 
    Three Months Ended June 30,     Six Months Ended June 30,
2016   2015   Change 2016   2015   Change
EBIT $ 214.4 $ 229.2 (6 )% $ 364.5 $ 514.4 (29 )%
Pension Remeasurement (a) 13.1 (1.5 ) 19.2 (1.5 )
Investigation Accrual (c) 12.0
Fuel for Growth (b) 2.0 11.1
Venezuela (d) 0.2 78.4
All Other (e) 0.5   (5.7 ) 1.3   (2.7 )
Non-GAAP EBIT 230.2 222.0 4 % 474.5 522.2 (9 )%
Foreign currency impact 14.9     40.9    
Non-GAAP Constant Dollar EBIT $ 245.1 $ 222.0 10 % $ 515.4 $ 522.2 (1 )%
 

Non-GAAP diluted EPS

 
    Three Months Ended June 30,     Six Months Ended June 30,
2016   2015   Change 2016   2015   Change
GAAP EPS-Diluted $ 0.83 $ 0.80 4 % $ 1.21 $ 1.82 (34 )%
Pension Remeasurement (a) 0.04 0.06 (0.01 )
Investigation Accrual (c) 0.04
Fuel for Growth (b) 0.01 0.05
Venezuela (d) 0.42
All Other (e)   (0.04 ) 0.01    
Non-GAAP EPS $ 0.88   $ 0.76   16 % $ 1.75   $ 1.85   (5 )%
 

Consolidated Net Debt

 
    June 30, 2016     December 31, 2015
Short-term borrowings $ 3.8 $ 3.0
Long-Term Debt 3,021.9   2,981.0
Total Debt 3,025.7 2,984.0
Less: Cash and cash equivalents $ 1,716.0   $ 1,701.4
Net debt $ 1,309.7 $ 1,282.6
 

(a) Pension Remeasurement: When incurred, gains and losses related to the remeasurement of defined benefit pension and post-employment benefit plans are classified as Specified Items and excluded from non-GAAP performance measures. Pension remeasurement reflects changes in the pension assets and liabilities above what was estimated and included in periodic costs. Factors beyond our control such as changes in discount rates, market volatility and mortality assumptions drive the remeasurement amount. The majority of our pension and post-employment plans are frozen, and therefore the benefit provided to such employees is not related to our underlying operations.

(b) Fuel for Growth: The Company approved a plan to implement a business productivity program referred to as “Fuel for Growth,” during the third quarter of 2015, which is anticipated to be implemented over a three-year period. Fuel for Growth is designed to improve operating efficiencies and reduce costs. Fuel for Growth is expected to improve profitability and create additional investments behind brand building and growth initiatives. Fuel for Growth focuses on the optimization of resources within various operating functions and certain third party costs across the business.

(c) Investigation Accrual: An accrual made in connection with the SEC settlement disclosed by the Company in July 2015.

(d) Venezuela: Foreign exchange losses and long-lived asset impairment charges in Venezuela.

(e) All Other: Primarily includes restructuring costs in 2016 and a marketable securities gain in 2015.

Source: Mead Johnson Nutrition Company

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

7/28/2016