Mead Johnson's 2010 GAAP net earnings increase to $2.20 per diluted share

Mead Johnson Nutrition Company (NYSE: MJN) announced today its financial results for the fourth quarter and year ended Dec. 31, 2010.

“As we look ahead, we expect to report another year of solid sales and earnings growth”

• GAAP net earnings rose to $2.20 per diluted share for 2010, up from $1.99 per diluted share in 2009.
• Non-GAAP  net earnings for 2010 increased to $2.42 per diluted share, up from $2.23 per diluted share a year earlier.
• Sales for 2010 were up 11 percent to $3,141.6 million from $2,826.5 million in 2009, benefiting by 2 percent from foreign exchange.
• GAAP net earnings totaled $0.48 per diluted share for the fourth quarter of 2010, compared with $0.31 per diluted share for the year-ago fourth quarter.
• Non-GAAP net earnings increased to $0.57 per diluted share for the fourth quarter, up from $0.48 per diluted share in 2009. The increase was driven by strong growth in emerging markets and market share gains in the United States, partially offset by higher commodity costs, demand-generation investments and a shared service cost overlap. Earnings also benefited from lower interest expense and a reduced effective tax rate.
• Sales for the fourth quarter of 2010 were up 13 percent to $803.7 million from $714.4 million a year ago with continued double-digit growth reported in Asia and Latin America and low-single-digit growth for North America and Europe. Foreign exchange contributed 2 percent to sales growth in the quarter.
• The company provided initial full-year 2011 non-GAAP EPS guidance of $2.55 to $2.65. Including specified items estimated at $0.27 per share, GAAP EPS guidance is $2.28 to $2.38.

"We concluded the year on a strong note reporting record sales and earnings for 2010," said Chief Executive Officer Stephen W. Golsby. "The year unfolded as expected with Asia and Latin America continuing to deliver double-digit sales growth and the North America/Europe segment growing in the low single-digits. In order to drive sustainable growth, we met our commitment to increase investment in demand-generation activities and our research and development capabilities. During 2010, we introduced several important product and packaging innovations that will give us momentum this year. Other accomplishments of note include geographic expansion in China; investments in Brazil, Russia, India and the Middle East; a record level of productivity, which helped offset the impact of higher commodity costs; and significant progress on our transition to a new shared service provider and our own IT platform. Our strong performance is evidence of the effectiveness of our growth strategy, and we expect that 2011 will be another successful year for Mead Johnson."

Fourth Quarter Results

Net sales for the fourth quarter of 2010 totaled $803.7 million, up 13 percent from $714.4 million a year earlier. Sales benefited 7 percent from volume, 4 percent from price and 2 percent from foreign exchange. Earnings before interest and income taxes (EBIT) totaled $146.6 million, up from $113.0 million in 2009. EBIT in the fourth quarter of 2010 was adversely affected by higher commodity and shared service overlap costs. The fourth quarter of 2010 includes $28.1 million of specified items largely relating to IT separation costs. The fourth quarter of 2009 included $54.2 million of specified items consisting of legal, severance, IT separation and IPO-related costs.

Net earnings attributable to shareholders for the fourth quarter of 2010 totaled $99.6 million, or $0.48 per diluted share, compared with $64.0 million, or $0.31 per diluted share, for the prior-year period. Results for 2010 benefited from lower interest expense and a lower effective tax rate compared with the year-ago fourth quarter.

On a non-GAAP basis, which excludes the specified items noted above, net earnings attributable to shareholders totaled $116.5 million, or $0.57 per diluted share, for the fourth quarter of 2010, compared with net earnings attributable to shareholders of $99.4 million, or $0.48 per diluted share, for the same quarter a year earlier.

Fourth Quarter Segment Results

The Asia/Latin America segment had net sales of $509.7 million for the fourth quarter of 2010, up 20 percent from $425.4 million in 2009. Sales benefited 10 percent from volume, 7 percent from price and 3 percent from foreign exchange. EBIT totaled $154.1 million, up 11 percent compared with $138.5 million for the year-ago fourth quarter. Segment sales were driven by particularly strong performance in China and Hong Kong, as well as in Latin America. The increase in EBIT was due to higher sales, partially offset by higher commodity costs and demand-generation investments along with sales force additions, primarily in China and Brazil.

The North America/Europe segment reported net sales of $294.0 million for the fourth quarter of 2010, up 2 percent from $289.0 million in 2009, all driven by volume. The segment benefited from an increase in sales due to share gains driven by new products and a competitor's temporary product recall in the United States. EBIT totaled $85.0 million compared with $81.3 million in the fourth quarter a year ago.

Full-Year 2010 Results

For the year ended Dec. 31, 2010, net sales totaled $3,141.6 million, up 11 percent from $2,826.5 million for 2009. Sales benefited 5 percent from volume, 4 percent from price and 2 percent from foreign exchange. EBIT increased to $682.9 million, up from $679.6 million a year earlier. Net earnings attributable to shareholders for 2010 totaled $452.7 million, up 13 percent from $399.6 million in 2009. The year benefited from strong sales growth, lower interest expense and a reduced effective tax rate, which were largely offset by continued investment in demand-generation activities, higher commodity costs, the impact of the January 2010 devaluation of the Venezuela bolivar and the shared service cost overlap. Results for 2010 include $71.4 million of specified items, primarily IT separation costs. Results for 2009 included $81.1 million of specified items, consisting of IPO-related, severance, IT separation and legal costs and settlements, as well as a gain on an asset sale. Earnings per diluted share for 2010 were $2.20 compared with $1.99 in 2009.

On a non-GAAP basis, which excludes the above-mentioned specified items, net earnings attributable to shareholders totaled $498.2 million, or $2.42 per diluted share, in 2010, compared with $456.3 million, or $2.23 per diluted share, in 2009.

Outlook for 2011

"As we look ahead, we expect to report another year of solid sales and earnings growth," Mr. Golsby said. "We are initiating 2011 non-GAAP EPS guidance in the range of $2.55 to $2.65, up from $2.42 per share in 2010."

Key assumptions underlying non-GAAP guidance include a net sales increase of 7 percent to 8 percent, excluding the effect of foreign exchange; higher raw material and packaging costs, offset by continued productivity gains and pricing; increasing investments in demand-generation activities and continued expansion in developing markets; an approximately $15 million increase in non-cash compensation expense for performance-based equity awards; approximately $10 million of incremental depreciation and amortization and an effective tax rate between 28 percent and 29 percent.