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)–Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial
results for the quarter and nine months ended September 30, 2015.

• Third quarter constant dollar⁽¹⁾ sales were 4% below the
  prior year quarter. Continued strength in North America/Europe only
  partially offset the impact of weaker performance in emerging markets.
  Results were further impacted by adverse foreign currency translation
  and reported sales were 10% below the prior year quarter.
• Sales for the nine months ended September 30, 2015 were 1% below the
  prior year on a constant dollar basis and 6% below on a reported basis.
• Gross margin improved by 460 basis points to 64.5% from 59.9% in the
  prior year quarter, mainly due to lower dairy input costs.
• EBIT as adjusted⁽²⁾ was 7% above the prior year on a
  constant dollar basis. On a reported basis, EBIT was 7% below the
  prior year.
• Based on weighted average shares outstanding for the quarter of 201.7
  million, non-GAAP EPS⁽²⁾ for the third quarter was $0.80;
  GAAP EPS was $0.77.
• The company repurchased 5.6 million shares of stock for $437 million
  during the quarter under the existing authorization. Shares
  outstanding at September 30, 2015 were 197.1 million.
• The company announces a new share repurchase program of up to $1.5
  billion of the company’s common stock.
• Full-year constant dollar sales are expected in the range of 2% to 3%
  below the prior year. Including the impact of foreign exchange,
  full-year reported sales performance is expected to be 7% to 8% below
  the prior year.
• Full-year non-GAAP EPS is expected to be in the range of $3.33 to
  $3.43.
• The company expects to incur charges of approximately $25 million
  associated with the Fuel for Growth initiative in the fourth quarter
  of 2015. Inclusive of this charge, 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.

“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.

• Strong performance in North America/Europe was insufficient to fully
  offset sales weakness in emerging markets.
• The North America/Europe segment delivered strong sales growth, driven
  by market share gains and favorable market conditions in the United
  States and Canada.
• In China, price based promotional activities were seen across all
  channels. The company recently introduced a fully imported range of
  products in China which are performing well. However, weakness in
  demand for locally manufactured products remained a challenge.
• In several other emerging markets, share gains made late in the
  quarter were insufficient to offset earlier share losses and category
  softness.

• EBIT as adjusted, on a constant dollar basis, increased 7% above the
  prior year quarter, mainly due to higher gross margins as a result of
  favorable dairy costs across all segments.
• North America/Europe EBIT was driven by higher sales and gross margin
  improvement, partially offset by higher advertising and promotion
  investments, including digital.
• Asia and Latin America EBIT was primarily the result of lower sales.
• Latin America EBIT performance and comparison was further exacerbated
  by prior-year foreign exchange related gains on payments received from
  the Venezuelan business and the current year postponed shipments into
  the country.
• Corporate and Other expenses increased primarily due to the
  nonrecurrence of a prior-year pension curtailment gain, as well as
  higher actuarial losses in the current year compared to the prior
  year. Partially offsetting these increases were lower provisions for
  incentive related compensation in the current year.

• Strong growth in North America/Europe was insufficient to fully offset
  generally weaker category sales in emerging markets.
• North America/Europe sales growth was driven by higher, realized
  pricing and market share gains.
• In China, continued price-based promotional activity and an ongoing
  shift in consumer demand towards fully imported products negatively
  impacted demand for the company’s locally manufactured products. The
  company recently introduced a fully imported product that has met
  expectations since its launch in the second quarter of 2015.
• In Latin America, sales were lower due to slowing category growth and
  adverse foreign exchange movements. Share gains were seen in key
  markets following strategic investment. The company slowed shipments
  to Venezuela late in the period, pending access to foreign exchange to
  allow settlement of inter-company payables.

• EBIT as adjusted, on a constant dollar basis, increased 1% due to
  higher gross margins across all segments as a result of lower dairy
  costs. Higher operating expenses, including increased investment in
  demand-creation initiatives on a local currency basis, partially
  offset the impact from gross margin improvements.
• The reduction in EBIT in Asia was driven by lower sales and higher
  demand-creating investments to support the introduction of the
  company’s fully imported products in China.
• Latin America EBIT was impacted by lower sales. In addition, the
  comparison was also impacted by foreign exchange related gains in
  Venezuela in the prior year period.
• North America/Europe EBIT benefited from higher sales and improved
  gross margin.
• Corporate and Other expenses increased primarily as a result of
  one-time costs related to the company’s settlement of the SEC matter,
  as disclosed in July 2015.

Cash Flow Items and Share Repurchases

• Cash and cash equivalents increased by $66 million since December 31,
  2014 and were $1.4 billion at September 30, 2015. Short-term
  borrowings and long-term debt were $1.5 million and $1.8 billion,
  respectively, as of September 30, 2015.
• Operating cash flow was $609 million in the nine months ended
  September 30, 2015 compared to $565 million in the same period last
  year. Cash flows increased due to working capital improvements which
  were substantial enough to more than offset the impact of over $86
  million in discretionary contributions to pension plans. In the prior
  year, cash outflow related to re-branding of certain products and the
  start-up of the manufacturing facility in Singapore did not recur in
  the current year.
• Investing activities include capital expenditures of $125 million
  during the nine months ended September 30, 2015. This included
  investments in capacity expansion for manufacturing facilities in the
  U.S. and the Netherlands to accommodate demand for our new fully
  imported product in China and liquid offerings.
• Financing activities include cash outflows of $437 million for the
  repurchase of approximately 5.6 million shares of stock under the
  company’s 2013 share repurchase authorization, which is now
  substantially complete. These purchases were funded, in part, from
  $322 million of borrowings against the company’s revolving credit
  facility.
• On October 20, 2015, the company’s board of directors approved a new
  share repurchase authorization of $1.5 billion of the company’s common
  stock. The company expects to finance the share repurchases through
  the issuance of debt, which may include long-term notes. The adoption
  of the new program follows the substantial completion of purchases of
  common stock under the prior repurchase authorization approved in
  September 2013. Shares will be repurchased from time to time in the
  open market or in privately negotiated transactions, including,
  without limitation, the anticipated use of a $1.0 billion accelerated
  share repurchase program which the company expects to execute in the
  short term.

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).

Contacts

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

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