Mead Johnson announces its financial results for the third quarter ended Sept. 30, 2009

Oct 22 2009

Mead Johnson Nutrition Company (NYSE: MJN) announced today its financial results for the third quarter ended Sept. 30, 2009, including:

• GAAP earnings of $0.48 per diluted share, down from $0.61 a year ago, reflecting the impact of higher interest expense and shares outstanding in 2009.
• Non-GAAP⁽¹⁾ earnings of $0.53 per diluted share, up from $0.50 last year, driven by lower commodity costs, partially offset by the impact of a stronger dollar and greater investments in advertising and promotion.
• GAAP sales down 6 percent quarter-over-quarter; non-GAAP constant dollar sales down 1 percent, as growth in emerging markets in Asia and Latin America was offset by customer inventory adjustments and lower demand in the United States and Europe.
• Full-year 2009 non-GAAP EPS guidance narrowed to $2.20 to $2.25, the top end of the previous range of $2.15 to $2.25. This compares with non-GAAP EPS of $1.90 in 2008.
• GAAP EPS guidance narrowed to $2.06 to $2.11, which compares with GAAP EPS of $2.32 in 2008.

⁽¹⁾Mead Johnson, formerly a wholly owned subsidiary of Bristol-Myers Squibb Company (BMS), completed its initial public offering (IPO) in February 2009. Results for 2008 and 2009 have been adjusted for the factors affecting comparability due to the IPO and other specified items and are, therefore, adjusted non-GAAP (non-GAAP) financial measures. See “Factors Affecting Comparability – Adjusted Non-GAAP Financial Measures” and the detailed reconciliation of GAAP and non-GAAP results included in this release.

“Our solid performance in the third quarter reflects the success of our global growth strategies,” said Mead Johnson Chief Executive Officer Stephen W. Golsby. “Our sales performance in constant dollars reflects continued double-digit growth in Asia and Latin America, as we continue to launch new products, strengthen our marketing programs and expand our distribution footprint in China. In the United States, we brought three more product innovations to market, including Enfamil Premium in a new, recyclable package. This offering saves the consumer money and reduces packaging waste, while providing the same trusted nutritional product parents have come to expect from Mead Johnson. We are also using television advertising for the first time in the United States to communicate Enfamil Premium’s clinically proven Triple Health Guard™ benefits of brain and eye development, immunity and growth.”

“Our cash balance at the end of September stood at $597 million, up from $577 million at the end of June,” Golsby added. “The increase was driven by a combination of strong earnings and good working capital management, which more than offset the $86 million in dividend payments and pension plan contributions made in the quarter. Looking at our balance sheet, we are considering options to refinance approximately $1.75 billion of debt, which is held by Bristol-Myers Squibb, to take advantage of the current lower interest rate environment. Our ability to access the capital markets marks another important milestone for Mead Johnson as a public company.”

Third Quarter GAAP Results
Net sales for the third quarter of 2009 totaled $699.8 million, down 6 percent from $742.8 million a year-ago. Sales were reduced by 7 percent from volume and 4 percent from foreign exchange, which offset the 5 percent increase from price. Earnings before interest and income taxes (EBIT) totaled $159.7 million, down from $163.7 million a year earlier. Total operating expenses increased to $295.5 million, up from $291.2 million. EBIT margin increased 80 basis points to 22.8 percent in the third quarter of 2009, driven primarily by the effect of lower commodity costs on gross margin, partially offset by higher expense spending as a percent of sales, including higher costs of being a public company. Results for 2009 include $15.9 million of costs associated with the IPO, separation from BMS’s IT systems and other specified costs. Results for 2008 include $13.8 million of IPO costs. Interest expense in the third quarter of 2009 totaled $23.0 million, compared with $11.9 million a year ago.

Net earnings attributable to shareholders for the third quarter of 2009 totaled $97.6 million, or $0.48 per diluted share, compared with $102.7 million, or $0.61 per diluted share, for the year-ago quarter. The higher earnings per share in 2008 were primarily due to significantly lower interest expense and fewer shares outstanding compared with 2009. There were approximately 204.6 million fully diluted shares outstanding in the third quarter of 2009, compared with 170.0 million shares a year ago.

Third Quarter GAAP Segment Results
The Asia/Latin America segment had net sales of $413.8 million for the third quarter of 2009, up 3 percent from $400.1 million in 2008. Sales increased 10 percent from price and volume, and were reduced by 7 percent from foreign exchange. EBIT totaled $143.7 million, up 33 percent compared with $108.2 million for the year-ago quarter. Segment sales performance was driven by double-digit constant dollar sales growth in both Asia and Latin America. EBIT benefited from lower commodity costs, partially offset by higher investments in advertising and promotion.

The North America/Europe segment reported net sales of $286.0 million for the third quarter of 2009, down from $342.7 million in 2008. Volume reduced sales by 16 percent, foreign exchange accounted for 2 percent of the decline and price increased sales by 1 percent. EBIT totaled $90.3 million, compared with $115.6 million in the third quarter a year ago. This segment’s results reflect expected reductions in retail inventories in the United States and distributor inventories held by BMS in Europe, share losses and contraction of the infant formula market in the United States. EBIT benefited from lower commodity prices, offset by higher advertising and promotional spending in support of new products.

Third Quarter Non-GAAP Results
For the third quarter of 2009, non-GAAP net sales were down 5 percent to $699.8 million from $735.1 million a year earlier. Sales were down 1 percent, excluding the impact of foreign exchange. Non-GAAP EBIT was down slightly to $175.6 million in the third quarter of 2009 from $177.2 million. Non-GAAP net earnings attributable to shareholders increased in the quarter to $107.7 million, or $0.53 per diluted share, up from $102.4 million, or $0.50 per diluted share, for the same quarter a year ago. The non-GAAP effective tax rate (ETR) in the third quarter of 2009 was 28.6 percent versus 30.6 percent a year-ago.

Nine Month GAAP Results
For the nine months ended Sept. 30, 2009, net sales totaled $2,112.1 million, down from $2,174.7 million for the first nine months of 2008. EBIT increased to $566.6 million, up from $560.8 million a year earlier. Results for 2009 include $48.8 million of expenses associated with the IPO and separation from BMS’s IT systems and other specified costs, partially offset by an $11.9 million gain from the sale of an intangible asset reported in the second quarter and a $10 million patent settlement reported in the first quarter. Results for 2008 include $14.0 million of IPO costs. Factors affecting EBIT in the first nine months of 2009 include the benefit of lower commodity costs and productivity savings, offset by higher advertising and promotion spending and costs incurred as a public company.

Net earnings attributable to shareholders for the first nine months of 2009 totaled $335.6 million, compared with $347.5 million, for the same period a year ago. Interest expense in the first nine months of 2009 totaled $75.3 million, compared with $11.9 million the same period a year ago. Results for 2009 benefited from a lower ETR compared with 2008. The ETR for the first nine months of 2009 was 30.1 percent versus 35.5 percent for 2008. Earnings per diluted share for the first nine months of 2009 were $1.68, compared with $2.05 in 2008. The higher earnings per share in 2008 were due to significantly lower interest expense and fewer shares outstanding compared with 2009. There were approximately 199.3 million fully diluted shares outstanding in the first nine months of 2009, compared with 170.0 million shares in 2008.

Nine Month Non-GAAP Results
For the first nine months of 2009, non-GAAP net sales of $2,112.1 million were down 2 percent compared with 2008. Excluding foreign exchange, sales increased 4 percent. Non-GAAP EBIT increased to $593.5 million in the first nine months of 2009, up from $573.1 million in the prior year. Non-GAAP net earnings attributable to shareholders increased to $356.9 million, or $1.74 per diluted share, up 13 percent from $314.8 million, or $1.54 per diluted share, for the same period a year ago. The non-GAAP ETR in the first nine months of 2009 was 29.6 percent, compared with 35.2 percent for the first nine months a year ago.

Outlook for 2009
The company expects to report non-GAAP EPS in the range of $2.20 to $2.25 for 2009, which is at the high end of its previous range of $2.15 to $2.25, up 17 percent from the mid-point compared with $1.90 per share in 2008. Key assumptions underlying this non-GAAP estimate include: an increase in net sales of about 4 percent, excluding the effect of foreign exchange; EBIT margin expansion driven by higher gross margins, partially offset by greater investment in demand-generation spending; an ETR of approximately 30 percent; and 204.6 million fully diluted shares outstanding. Compared with the first three quarters of 2009, the fourth quarter will see significantly higher operating expense spending, as well as a reduction of distributor inventories held by BMS in Europe in advance of the transition to third-party distribution. The non-GAAP earnings guidance excludes specified IPO and other costs and the related effect on the tax rate, which is expected to total approximately $0.14 per share. Therefore, the GAAP estimate for 2009 is $2.06 to $2.11 per diluted share, compared with $2.32 per share in 2008.