Mead Johnson second-quarter net sales increase 6% to $764.2 million

Jul 29 2010

Mead Johnson Nutrition Company (NYSE: MJN) announced today its financial results for the second quarter ended June 30, 2010, including:

“We are pleased with our performance for the second quarter”

• Net sales in the quarter were up 6 percent versus the second quarter of 2009. Excluding the favorable impact of foreign exchange, sales increased 4 percent.
• GAAP net earnings of $0.59 per diluted share for second quarter of 2010, compared with $0.66 per diluted share for 2009.
• Non-GAAP net earnings of $0.63 per diluted share for the second quarter of 2010, down slightly from $0.65 per diluted share a year earlier.
• Sales growth was driven by strong performance in Asia and Latin America, partially offset by a decline in North America. Earnings benefited from sales growth in emerging markets, lower interest expense and reduced effective tax rate, offset by higher commodity costs, demand-generation investments and costs incurred as a stand-alone company.
• Full-year non-GAAP EPS guidance range narrowed to $2.35 to $2.40 from $2.33 to $2.40. Including specified items estimated at $0.26 per share, GAAP EPS guidance is $2.09 to $2.14.

"We are pleased with our performance for the second quarter," said Chief Executive Officer Stephen W. Golsby. "The year continues to progress as expected with double-digit sales and earnings growth from emerging markets continuing to drive our results. Our quarterly earnings performance is particularly rewarding given the investments we are making in geographic expansion and demand creation, as well as the higher costs as a stand-alone company and the impact of anticipated increases in dairy costs."

Second Quarter Results

Net sales for the quarter ended June 30, 2010, totaled $764.2 million, up 6 percent from $719.3 million a year ago. Sales benefited 4 percent from price and 2 percent from foreign exchange with volume flat. Earnings before interest and income taxes (EBIT) for the second quarter totaled $172.9 million, down from $218.1 million a year earlier. Net earnings attributable to shareholders for the second quarter of 2010 totaled $121.4 million, or $0.59 per diluted share, compared with $134.5 million, or $0.66 per diluted share for the prior-year period.

The decline in EBIT in the second quarter of 2010 was primarily due to higher commodity and manufacturing costs, increased advertising and promotion spending, costs of an increased sales force and costs to separate from Bristol-Myers Squibb's IT platform. Partially offsetting the impact of these items was the benefit of significantly lower interest expense as a result of the debt refinancing completed in the fourth quarter of 2009 and a lower effective tax rate. Results for the second quarter of 2009 benefited from an $11.9 million gain on the sale of a non-strategic asset, partially offset by costs associated with the company's initial public offering (IPO) in February 2009.

On a non-GAAP basis, which excludes specified items, net earnings attributable to shareholders totaled $130.1 million, or $0.63 per diluted share, for the second quarter of 2010, compared with $133.4 million, or $0.65 per diluted share, for the same quarter a year ago.

Second Quarter Segment Results

The Asia/Latin America segment had net sales of $471.7 million for the second quarter of 2010, up 19 percent from $396.5 million in 2009. Sales benefited 10 percent from volume, 6 percent from price and 3 percent from foreign exchange. Segment performance was driven by double-digit constant-dollar sales growth, notably in China, Mexico, Hong Kong, Malaysia, Brazil and Peru. EBIT totaled $157.7 million, up 8 percent compared with $146.1 million for the year-ago second quarter. EBIT was adversely affected in the quarter by increased dairy prices and higher demand-generation investments in advertising and promotion and sales force additions in support of geographic expansion efforts, primarily in China and Brazil.

The North America/Europe segment reported net sales of $292.5 million for the second quarter of 2010, down 9 percent from $322.8 million in 2009. Sales benefited 2 percent from price and 1 percent from foreign exchange, offset by a 12 percent decline in volume. The company's launch of Enfamil Premium in the United States led to a retail inventory build in the second quarter of 2009. The timing of changes in inventory accounted for approximately three-quarters of the sales decline in the second quarter of 2010 with the balance primarily due to market contraction in the United States driven by lower births. EBIT totaled $78.2 million, compared with $119.0 million in the second quarter a year ago. The decrease was principally the result of lower sales and the impact of increased dairy and manufacturing costs.

Six-Month Results

Net sales for the six months ended June 30, 2010, totaled $1,527.7 million, up 8 percent from $1,412.3 million a year ago. Sales benefited 4 percent from price, 3 percent from foreign exchange and 1 percent from volume. EBIT for the first half of 2010 totaled $370.8 million, down from $406.9 million a year earlier. Net earnings attributable to shareholders for the first half of 2010 totaled $247.0 million, or $1.20 per diluted share, compared with $238.0 million, or $1.21 per diluted share for the prior-year period.

For the first half of 2010, the benefit from lower interest expense and a lower effective tax rate was offset by higher operating expense, including investments in advertising and promotion, and IT separation and stand-alone company costs. Results for 2009 include costs associated with the company's IPO, partially offset by a $10.0 million patent settlement in the first quarter and the $11.9 million gain on the asset sale in the second quarter, noted above.

On a non-GAAP basis, which excludes specified items, net earnings attributable to shareholders totaled $263.9 million, or $1.28 per diluted share, for the first half of 2010, compared with $249.2 million, or $1.22 per diluted share, for the same period a year ago.

Six-Month Segment Results

The Asia/Latin America segment had net sales of $927.7 million for the first half of 2010, up 18 percent from $786.3 million in 2009. Sales benefited 8 percent from volume, 6 percent from price and 4 percent from foreign exchange. EBIT totaled $324.0 million, up 10 percent compared with $294.8 million for the year-ago period. Segment results benefited from double-digit constant-dollar sales growth in the majority of the company's largest markets. In 2010, the company increased investments in advertising and promotion and sales force in support of geographic expansion efforts, primarily in China and Brazil.

The North America/Europe segment reported net sales of $600.0 million for the first half of 2010, down from $626.0 million in 2009. Sales benefited 2 percent from foreign exchange and 1 percent from price, offset by a 7 percent decline in volume. The sales decline was primarily attributed to the impact of the retailer inventory build in the second quarter of 2009 and market contraction in the United States. EBIT totaled $175.3 million, compared with $220.2 million in the same period a year ago. The decrease was primarily due to lower sales, a lower gross margin driven by higher commodity and manufacturing costs, and increased advertising and promotion spending.