Mead Johnson's Q1 net earnings up 16.3% to US$146.1M, net sales up 18% to US$899.8M on growth in Asia, Latin America, boost in U.S. market share; higher commodity costs, increased spending, competitor's recall to pressure in H2

GLENVIEW, Illinois , April 28, 2011 (press release) – Mead Johnson Nutrition Company (NYSE:MJN - News) announced today its financial results for the first quarter ended March 31, 2011.

    * Net sales in the quarter were up 18 percent versus the first quarter of 2010. Excluding the favorable impact of foreign exchange, sales increased 15 percent.
    * GAAP net earnings of $0.71 per diluted share for the first quarter of 2011 were up from $0.61 per diluted share a year ago.
    * Non-GAAP (1) net earnings of $0.76 per diluted share were up 17 percent from $0.65 per diluted share for 2010.
    * Sales were driven by double-digit volume growth in Asia and Latin America combined with solid U.S. growth.
    * Earnings benefited from strong sales and a lower effective tax rate versus the year-ago quarter.
    * Full-year non-GAAP EPS guidance range raised to $2.62 to $2.70 from $2.55 to $2.65. Including specified items estimated at $0.27 per share, full-year GAAP EPS guidance is $2.35 to $2.43.
      (1) See “Non-GAAP Financial Measures” and the reconciliation of GAAP and non-GAAP results included in this release.

“We are very pleased with our sales and earnings performance in the quarter,” said Chief Executive Officer Stephen W. Golsby. “The Asia/Latin America segment reported sales growth of 27 percent and now accounts for over 64 percent of global sales. This strong growth was led by China/Hong Kong and supported by broad-based gains across most of our emerging markets. The increase in U.S. market share drove 5 percent sales growth in the North America/Europe segment. Globally, our growth was heavily weighted towards volume and we grew market share from product innovations, increased demand-generation investments and high standards of marketplace execution. In the second half we will face more challenging year-over-year comparisons from higher commodity costs, increased spending behind growth drivers and stronger sales in 2010 due in part to the impact from a competitor’s recall. Nevertheless, we have positive momentum in the business. Strong net earnings and continued working capital improvements resulted in our cash balance increasing to $709 million at the end of the first quarter of 2011, compared to $596 million at the end of 2010.”

First Quarter Results

Net sales for the first quarter totaled $899.8 million, up 18 percent from $763.5 million a year ago. Sales benefited 11 percent from volume, 4 percent from price and 3 percent from foreign exchange. Earnings before interest and income taxes (EBIT) for the first quarter totaled $222.6 million, up 12 percent from $197.9 million a year earlier. The increase in EBIT was driven by higher sales, partially offset by increased demand-generation investments and costs to implement our stand-alone IT platform.

On a percentage of sales basis, the EBIT margin of 24.7 percent was down 120 basis points versus the first quarter of 2010. Gross margin remained flat compared with a year ago as increased commodity costs were offset by higher pricing, productivity gains and favorable manufacturing costs. The increase in operating expenses, measured as a percentage of sales, was driven by higher shared service overlap costs, increased sales force and distribution spending, higher IT separation costs and foreign exchange losses at our European manufacturing entity.

Net earnings attributable to shareholders for the first quarter of 2011 totaled $146.1 million, or $0.71 per diluted share, compared with $125.6 million, or $0.61 per diluted share for the prior-year quarter. The first quarter of 2011 benefited from lower tax rates primarily attributable to a change in our geographic earnings mix.

On a non-GAAP basis, which excludes specified items, the net earnings attributable to shareholders totaled $156.8 million, or $0.76 per diluted share, compared with $133.8 million, or $0.65 per diluted share, for the same quarter a year ago.

First Quarter Segment Results

The Asia/Latin America segment had net sales of $576.9 million for the first quarter of 2011, up 27 percent from $456.0 million in 2010. Sales benefited 15 percent from volume, 7 percent from price and 5 percent from foreign exchange. EBIT totaled $216.8 million, up 30 percent compared with $166.3 million for the year-ago quarter. EBIT increased from strong sales due to overall market growth and market share gains driven by higher advertising, promotion and sales force investments.

The North America/Europe segment reported net sales of $322.9 million for the first quarter of 2011, up 5 percent from $307.5 million in 2010. The sales increase was driven by market share gains in the U.S. business from both successful new product launches and a competitor’s recall in late 2010. EBIT totaled $92.9 million, compared with $97.1 million for the year-ago quarter affected by demand-generation activities and new corporate charges for the IT platform that was launched in late 2010.

Corporate and Other expenses increased due to foreign exchange losses on U.S. dollar denominated receivables held by our European manufacturing entity and higher IT separation costs.

Outlook for 2011

“Looking at the full year, we anticipate higher sales and earnings growth than in our previous guidance. Sales are expected to grow about 10 percent, excluding foreign exchange. However, we will face tougher comparisons and higher commodity costs in the second half of 2011, and we plan to accelerate demand-generation investments to drive long-term sustainable growth. Given our expectations of higher sales, we are raising our full year non-GAAP earnings estimate to $2.62 to $2.70 per share,” Mr. Golsby noted.

Conference Call Scheduled

The company will host a conference call at 8:30 a.m. CDT today during which company executives will review first quarter financial results and respond to questions from analysts and investors. The call will be broadcast over the Internet at meadjohnson.com. To listen to the call, go to the Web site at least 15 minutes before the call and click on the Investors tab. Security analysts and investors wishing to participate by telephone should call 1-800-215-2410, pass code: Mead Johnson. Callers outside of North America should call +1-617-597-5410 to be connected. A replay of the conference call will be available through midnight EDT Thursday, May 5, 2011, by calling 1-888-286-8010 or outside of North America by calling +1-617-801-6888, pass code: 28439507. The replay will also be available at meadjohnson.com.

About Mead Johnson

Mead Johnson, a global leader in pediatric nutrition, develops, manufactures, markets and distributes more than 70 products in 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 meadjohnson.com.

MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in millions, except per share data)
(UNAUDITED)
 
    Three Months Ended March 31,
    2011   2010
NET SALES   $ 899.8   $ 763.5
COST OF PRODUCTS SOLD     320.0     271.8
         
GROSS PROFIT     579.8     491.7
EXPENSES:        
SELLING, GENERAL AND ADMINISTRATIVE     213.4     171.4
ADVERTISING AND PROMOTION     111.3     98.4
RESEARCH AND DEVELOPMENT     19.3     20.1
OTHER EXPENSES/(INCOME)—NET     13.2     3.9
         
EARNINGS BEFORE INTEREST AND INCOME TAXES     222.6     197.9
         
INTEREST EXPENSE—NET     13.1     12.1
         
EARNINGS BEFORE INCOME TAXES     209.5     185.8
         
PROVISION FOR INCOME TAXES     60.6     58.3
         
NET EARNINGS     148.9     127.5
Less: Net Earnings attributable to noncontrolling interests     2.8     1.9
         
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS   $ 146.1   $ 125.6
         
Earnings per share—basic        
Net Earnings attributable to shareholders   $ 0.71   $ 0.61
         
Earnings per share—diluted        
Net Earnings attributable to shareholders   $ 0.71   $ 0.61
         
         
Dividends declared per share   $ 0.26   $ 0.225

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