Mead Johnson Nutrition Reports Third Quarter and Nine Months 2016 Results; Reports Progress against Strategic Plan in Challenging Environment; Revises Near Term Outlook
GLENVIEW, Ill.–(BUSINESS WIRE)–Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial
results for the quarter and nine months ended September 30, 2016.
Highlights are as follows:
Gross sales were 2% below the prior year quarter on a reported basis
and 1% higher on a constant dollar(1) basis. Net sales were
4% below the prior year quarter on a reported basis and in-line with
the prior year quarter on a constant dollar basis. Momentum behind new
product launches in China and price increases within each segment
offset competitive challenges.
Excluding the impact of Venezuela, net sales were 1% above the prior
year quarter on a constant dollar basis.
Selling, general and administrative expenses decreased 12% compared to
the prior year quarter as a result of the company’s Fuel for Growth
program.
The company’s Fuel for Growth program is expected to deliver operating
expense savings towards the high end of the previously announced $75
million to $80 million range for 2016. Total cost savings of
approximately $180 million are expected by 2018.
Earnings before Interest and Income Taxes (EBIT) was 1% higher than
the prior year quarter. Excluding Specified Items and the impact of
foreign exchange, non-GAAP EBIT was 9% above the prior year quarter.
Earnings per Share (EPS) for the quarter was $0.80. Excluding
Specified Items, non-GAAP EPS for the quarter was $0.87. EPS for the
nine months ending September 30, 2016 was $2.02. Excluding Specified
Items, non-GAAP EPS for the nine months ending September 30, 2016 was
$2.63.
The company now expects full year net sales of 6% to 7% below the
prior year on a reported basis and 2% to 3% below the prior year on a
constant dollar basis. Sales may be lower due to market share
weaknesses in several markets, notably in the U.S., as well as
continued macroeconomic challenges in several emerging markets.
The company now expects 2016 GAAP EPS to be between $2.80 to $2.87.
GAAP EPS guidance may be impacted by potentially significant future
mark-to-market pension adjustments which cannot be estimated and are
classified as a Specified Item. The company now expects non-GAAP EPS
between $3.43 to $3.50. Specified Items include charges related to
Fuel for Growth and our Venezuela business. This guidance includes an
estimated adverse impact of currency exchange rates, which is now
expected to be approximately $0.30 per share.
Kasper Jakobsen, Chief Executive Officer, said, “We continue to make
progress against our global plan. Most critically, we have made
substantial progress in China. We are operating in a challenging global
environment and it is now clear that our growth will occur more slowly
than we had planned. In this environment, we have chosen to revise our
full year guidance for both top and bottom line numbers.”
(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.”
Third Quarter 2016
(Dollars in Millions)
(UNAUDITED)
Three Months Ended September 30,
% Change
% Change Due to
% of
% of
Constant
Foreign
Net Sales
2016
Total
2015
Total
Reported
Dollar
Volume
Price/Mix
Exchange
Asia
$463.2
49%
$476.8
49%
(3)%
0%
(4)%
4%
(3)%
Latin America
160.6
17%
184.5
19%
(13)%
0%
(10)%
10%
(13)%
North America/Europe
313.7
34%
316.2
32%
(1)%
0%
(5)%
5%
(1)%
Net Sales
$937.5
100%
$977.5
100%
(4)%
0%
(5)%
5%
(4)%
In Asia, sales were 3% below the prior year quarter on a reported
basis. Sales were negatively impacted by adverse foreign currency
translation, mainly in China. On a constant dollar basis, sales were
in-line with the prior year quarter. We experienced strong sales
growth in China, reflecting positive momentum from our new product
offerings and recovery of prior quarter customs clearing delays.
Continued adverse market dynamics negatively impacted our results in
other Asian markets, including the Philippines.
In Latin America, sales were 13% below the prior year quarter on a
reported basis. Sales were negatively impacted by adverse foreign
currency translation, primarily in Argentina and Mexico. On a constant
dollar basis, net sales were in-line with the prior year quarter.
Price increases mainly taken in 2016 across the segment offset volume
losses and suspended shipments into Venezuela. Excluding the impact of
suspended shipments into Venezuela, constant dollar sales increased by
5%.
In North America/Europe, sales were 1% below the prior year quarter on
a reported basis and were flat on a constant dollar basis. Sales in
the U.S. were negatively impacted by continued market share weakness
and increased competitive activities. The company’s market share
position strengthened during the quarter in Canada.
Three Months Ended September 30,
% Change
% Change Due to
Earnings Before Interest and Income Taxes (EBIT)
2016
% of Sales
2015
% of Sales
Reported
Constant Dollar
Foreign Exchange
Asia
$134.6
29
%
$154.2
32
%
(13
)%
(7
)%
(6
)%
Latin America
40.1
25
%
38.9
21
%
3
%
30
%
(27
)%
North America/Europe
107.1
34
%
101.3
32
%
6
%
9
%
(3
)%
Corporate and Other (a)
(53.6
)
(68.4
)
22
%
GAAP EBIT
228.2
24
%
226.0
23
%
1
%
8
%
(7
)%
Non-GAAP EBIT
$244.2
$239.0
2
%
9
%
(7
)%
(a) All Specified Items are included in
Corporate and Other.
EBIT was 1% above the prior year quarter on a reported basis.
Excluding pension remeasurement and Fuel for Growth related charges,
non-GAAP EBIT on a constant dollar basis was 9% above the prior year
quarter. Gross margin was in-line with the prior year as adverse
foreign exchange impacts were offset by lower dairy costs. Fuel for
Growth resulted in $20 million in lower operating expenses in 2016
compared to the prior year quarter.
In Asia, EBIT decreased 13% on a reported basis and 7% on a constant
dollar basis when compared to the prior year quarter. The decrease in
EBIT was primarily due to investments to increase consumer awareness
of Enfinitas.
In Latin America, EBIT increased 3% on a reported basis and 30% on a
constant dollar basis when compared to the prior year quarter. Foreign
currency had an adverse impact on EBIT, primarily due to devaluation
of the Mexican Peso. EBIT benefited from lower dairy costs and reduced
advertising and promotion spending when compared to a high level of
spending in the prior year to support product launches.
In North America/Europe, EBIT increased 6% on a reported basis and 9%
on a constant dollar basis when compared to the prior year quarter.
Improved gross margin from lower dairy costs and reduced operating
expenses contributed to the increase in EBIT.
Corporate and Other expenses were 22% lower than the prior year
quarter on a reported basis. Excluding the impact of Specified Items,
Corporate and Other expenses were 32% below the prior year due to
savings from the company’s Fuel for Growth program.
Nine Months 2016
(Dollars in Millions)
(UNAUDITED)
Nine Months Ended September 30,
% Change
% Change Due to
% of
% of
Constant
Foreign
Net Sales
2016
Total
2015
Total
Reported
Dollar
Volume
Price/Mix
Exchange
Asia
$
1,420.0
50
%
$
1,571.0
51
%
(10
)%
(6
)%
(7
)%
1
%
(4
)%
Latin America
487.4
17
%
587.3
19
%
(17
)%
(3
)%
(12
)%
9
%
(14
)%
North America/Europe
933.7
33
%
946.0
30
%
(1
)%
0
%
(2
)%
2
%
(1
)%
Net Sales
$
2,841.1
100
%
$
3,104.3
100
%
(8
)%
(4
)%
(6
)%
2
%
(4
)%
In Asia, sales were 10% below the prior year period on a reported
basis. Sales were negatively impacted by adverse foreign currency
translation, most notably in China. Sales were 6% below the prior year
on a constant dollar basis primarily due to channel shifts in China
and the rapid change in consumer preferences toward imported premium
products. In addition, continued adverse market dynamics negatively
impacted our results in the Philippines.
In Latin America, sales were 17% below the prior year period on a
reported basis. On a constant dollar basis, net sales were 3% below
the prior year. The segment was negatively impacted by adverse
currency translation, mainly in Mexico and Argentina. Excluding the
impact of reduced shipments to Venezuela, constant dollar sales
increased 6%. Price increases mainly taken in 2016 in key markets
offset a substantial portion of the adverse foreign exchange impact
across the segment.
In North America/Europe, sales decreased 1% on a reported basis and
were flat on a constant dollar basis compared to the prior year
period. In the U.S., the company experienced increased competitive
activities and category share weakness, which was partially offset by
strong growth and market share gains in both infant and children’s
products in Canada.
Nine Months Ended September 30,
% Change
% Change Due to
Earnings Before Interest and Income Taxes (EBIT)
2016
% of Sales
2015
% of Sales
Reported
Constant Dollar
Foreign Exchange
Asia
$440.7
31
%
$542.1
35
%
(19
)%
(13
)%
(6
)%
Latin America
117.1
24
%
141.0
24
%
(17
)%
2
%
(19
)%
North America/Europe
288.3
31
%
264.9
28
%
9
%
13
%
(4
)%
Corporate and Other (a)
(253.4
)
(207.6
)
(22
)%
GAAP EBIT
592.7
21
%
740.4
24
%
(20
)%
(12
)%
(8
)%
Non-GAAP EBIT
$718.7
$761.2
(6
)%
2
%
(8
)%
(a) All Specified Items are included in
Corporate and Other.
EBIT declined 20% in 2016 compared to the prior year period. EBIT in
2016 includes an $81 million charge related to the Venezuela business,
$23 million of pension remeasurement losses and adverse foreign
exchange. Excluding the impact of Specified Items and the impact of
foreign exchange, non-GAAP EBIT improved 2%. Reduced gross profit was
more than offset by lower operating expenses. Fuel for Growth resulted
in a $67 million reduction in operating expenses.
In Asia, EBIT decreased 19% on a reported basis and 13% on a constant
dollar basis when compared to the prior year period. Adverse foreign
exchange impacts were driven mainly by the Chinese Renminbi. EBIT was
further impacted by reduced gross profit from lower sales volumes and
investments to increase consumer awareness of Enfinitas.
In Latin America, EBIT decreased 17% on a reported basis and increased
2% on a constant dollar basis when compared to the prior year period,
with the Venezuela business driving the decline in the segment. Lower
gross profit was more than offset by cost savings initiatives and
lower advertising and promotion spending.
In North America/Europe, EBIT increased 9% on a reported basis
compared to the prior year period. EBIT increased due to lower dairy
costs, reduced advertising and promotion expenses and savings from
Fuel for Growth.
Corporate and Other expenses were 22% higher on a reported basis
compared to the prior year period primarily due to the long-lived
asset impairment and devaluation charges related to the Venezuela
business and charges associated with the Fuel for Growth program and
pension mark-to-market adjustments. Excluding the impact of these
Specified Items, Corporate and Other expenses were 32% lower due
primarily to cost reduction savings from Fuel for Growth.
Cash Flow Items and Liquidity
Cash and cash equivalents were $1,843.2 million at September 30, 2016
compared to $1,701.4 million at December 31, 2015. The company’s net
debt was $1,167.0 million at September 30, 2016, consisting of debt of
$3,010.2 million less cash and cash equivalents. Cash was negatively
impacted in the nine months ended September 30, 2016 by $33.0 million
of foreign currency devaluation, primarily in Venezuela.
Cash generated from operating activities was $510.7 million for the
nine months ended September 30, 2016 compared to $608.9 million in the
prior year period. Cash flows from operating activities were
negatively impacted by lower earnings in the current year and
increases in trade and other receivables.
Cash used in investing activities included capital expenditures of
$110.2 million for the nine months of 2016. This included investments
in capacity expansion for manufacturing facilities in the U.S. and
Europe.
Cash used in financing activities was $225.9 million for the nine
months ended September 30, 2016 compared to $374.0 million in the
prior year period. The prior year period included the repurchase of
$437 million of shares, partially funded by $322 million of borrowings
under the revolver, and cash used to acquire an incremental 10% of the
company’s business in Argentina. Dividend payments were lower in the
current year due to the retirement of shares repurchased primarily
under the Accelerated Repurchase Agreement (“ASR”).
Interest expense, net, for the nine months ended September 30, 2016
was $78.9 million, an increase from $42.5 million in the prior year
period due to the incremental interest on the long-term debt issued in
November 2015, partially offset by the impact of related interest rate
swaps.
Outlook
The company has revised its net sales outlook and now expects full year
net sales of 6% to 7% below the prior year on a reported basis and 2% to
3% below the prior year on a constant dollar basis. Sales may be lower
due to market share weaknesses in several markets, notably in the U.S.,
as well as continued macroeconomic challenges in several emerging
markets.
The company has revised its 2016 GAAP EPS guidance to $2.80 to $2.87 due
to lower sales. GAAP EPS guidance may be impacted by potentially
significant future mark-to-market pension adjustments which cannot be
estimated and are classified as a Specified Item. The company now
expects non-GAAP EPS between $3.43 to $3.50. 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 $0.30 per share.
Kasper Jakobsen continued, “Given known headwinds over the next year, we
anticipate only modest improvements to both our underlying sales and
earnings per share in 2017. In this context, continued strong
performance against our expense reduction targets will support our
investment in longer term growth initiatives and protect our ‘best in
class’ level of profitability. In the longer term, underlying
fundamentals for our core category are still supportive of our growth
ambitions. Hence, we remain committed to making the necessary
investments in our future.”
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 third quarter and first nine months 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, December 11, 2016, by calling 855-859-2056, or outside of
North America by calling +1-404-537-3406, passcode: 91365402. 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
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
NET SALES
$
937.5
$
977.5
$
2,841.1
$
3,104.3
Cost of Products Sold
333.7
346.8
1,014.5
1,096.7
GROSS PROFIT
603.8
630.7
1,826.6
2,007.6
Operating Expenses:
Selling, General and Administrative
190.0
216.1
595.6
679.5
Advertising and Promotion
162.3
156.1
480.1
490.7
Research and Development
23.1
26.3
74.9
79.9
Other (Income)/Expenses—net
0.2
6.2
83.3
17.1
EARNINGS BEFORE INTEREST AND INCOME TAXES
228.2
226.0
592.7
740.4
Interest Expense—net
26.3
14.8
78.9
42.5
EARNINGS BEFORE INCOME TAXES
201.9
211.2
513.8
697.9
Provision for Income Taxes
53.3
56.6
132.7
173.6
NET EARNINGS
148.6
154.6
381.1
524.3
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests
(0.7
)
(0.6
)
4.0
(1.2
)
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS
$
149.3
$
155.2
$
377.1
$
525.5
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders
$
0.80
$
0.77
$
2.02
$
2.59
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders
$
0.80
$
0.77
$
2.02
$
2.59
Weighted Average Shares—Diluted
185.0
201.7
186.3
202.6
Dividends Declared per Share
$
0.4125
$
0.4125
$
1.2375
$
1.2375
(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, 2016
December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents
$
1,843.2
$
1,701.4
Receivables—net of allowances of $4.9 and $5.4, respectively
397.2
342.5
Inventories
476.0
484.9
Income Taxes Receivable
29.2
13.2
Prepaid Expenses and Other Assets
60.1
60.4
Total Current Assets
2,805.7
2,602.4
Property, Plant and Equipment—net
929.6
964.0
Goodwill
112.8
126.0
Other Intangible Assets—net
47.2
54.9
Deferred Income Taxes—net of valuation allowance
131.4
118.5
Other Assets
167.0
132.3
TOTAL
$
4,193.7
$
3,998.1
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings
$
1.8
$
3.0
Accounts Payable
474.8
481.5
Dividends Payable
76.6
77.8
Accrued Expenses
230.9
213.0
Accrued Rebates and Returns
418.3
376.8
Deferred Income
19.0
35.5
Income Taxes Payable
28.6
65.7
Total Current Liabilities
1,250.0
1,253.3
Long-Term Debt
3,008.4
2,981.0
Deferred Income Taxes
5.6
8.7
Pension and Other Post employment Liabilities
137.7
132.4
Other Liabilities
230.7
215.2
Total Liabilities
4,632.4
4,590.6
COMMITMENTS AND CONTINGENCIES
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 189.7 and 191.4
issued, respectively
1.9
1.9
Additional Paid-in/(Distributed) Capital
(522.6
)
(564.2
)
Retained Earnings
782.2
640.4
Treasury Stock—at cost
(363.0
)
(362.6
)
Accumulated Other Comprehensive Income/(Loss)
(377.0
)
(347.8
)
Total Shareholders’ Equity/(Deficit)
(478.5
)
(632.3
)
Noncontrolling Interests
39.8
39.8
Total Equity/(Deficit)
(438.7
)
(592.5
)
TOTAL
$
4,193.7
$
3,998.1
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
Nine Months Ended September 30,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings
$
381.1
$
524.3
Adjustments to Reconcile Net Earnings to Net Cash Provided by
Operating Activities:
Depreciation and Amortization
74.4
73.4
Impairment of Long-Lived Assets
45.9
—
Other
60.8
63.1
Changes in Assets and Liabilities
(34.5
)
34.7
Pension and Other Post-employment Benefit Contributions
(17.0
)
(86.6
)
Net Cash Provided by Operating Activities
510.7
608.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures
(110.2
)
(125.2
)
Proceeds from Sale of Property, Plant and Equipment
0.2
0.4
Net Cash Used in Investing Activities
(110.0
)
(124.8
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings
—
1.5
Repayments of Short-term Borrowings
(0.8
)
(4.0
)
Debt Issuance Costs
(0.1
)
—
Proceeds from Long-term Revolver Borrowings
—
322.0
Payments of Dividends
(232.3
)
(243.6
)
Stock-based Compensation related Proceeds and Excess Tax Benefits
15.0
24.0
Stock-based Compensation Tax Withholdings
(4.2
)
(11.3
)
Payments for Repurchase of Common Stock
(0.4
)
(437.0
)
Purchase of Noncontrolling Interest Redeemable Shares
—
(24.2
)
Purchase of Trading Securities
—
(16.2
)
Sale of Trading Securities
—
21.7
Distributions to Noncontrolling Interests
(3.1
)
(6.9
)
Net Cash Used in Financing Activities
(225.9
)
(374.0
)
Effects of Changes in Exchange Rates on Cash and Cash Equivalents
