Mead Johnson Nutrition Reports Sequential Sales for First Quarter 2016 above Fourth Quarter 2015 on a Constant Dollar Basis; Reaffirms 2016 Sales and Non-GAAP EPS Guidance

GLENVIEW, Ill.–(BUSINESS WIRE)–Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial
results for the quarter ended March 31, 2016.

“In the first quarter, we again saw a sequential improvement in our
underlying business over the prior quarter,” said Kasper Jakobsen, Chief
Executive Officer. “While the economic climate outside the United States
is less favorable than it was a few years ago, we are confident in our
strategy. We are particularly encouraged by the progress we are making
on reshaping our China business and on bringing down our global
operating expense base.”

Highlights are as follows:

  • Sales in the first quarter of 2016 rose 1.5% over the fourth quarter
    of 2015 on a constant dollar(1) basis. First quarter 2016
    sales were down 0.5% from the fourth quarter of 2015 on a reported
    basis.
  • First quarter net sales were 6% below the prior year quarter on a
    constant dollar basis. Excluding Venezuela, sales were 4% below the
    prior year quarter on a constant dollar basis. On a reported basis
    sales were 12% below the prior year quarter.
  • Gross margin of 64.1% was in line with the prior year quarter on a
    non-GAAP(2) basis. On a GAAP basis, gross margin was 63.9%
    for the first quarter.
  • The Fuel for Growth program delivered strong savings during the first
    quarter, driving a decrease in selling, general and administrative
    expenses of 10% on a constant dollar, non-GAAP basis compared to the
    prior year quarter. Selling, general and administrative expenses
    decreased 15% on a reported basis.
  • Advertising and promotion spending increased by 11% versus the prior
    year quarter on a constant dollar basis, driven by investments in the
    rollout of new product innovations and the support of the company’s
    strategy in China. Advertising and promotion spending increased 5% on
    a reported basis.
  • Non-GAAP Earnings before Interest and Income Taxes (EBIT) on a
    constant dollar basis in the first quarter was 10% below the prior
    year quarter. Specified Items were $94 million, most notably $78
    million of charges related to currency devaluation and long-lived
    asset impairment in our Venezuela subsidiary. EBIT was 47% below the
    prior year quarter.
  • Non-GAAP Earnings per Share (EPS) for the first quarter was $0.87.
    Including Specified Items, GAAP EPS was $0.39.
  • The company reaffirms full year 2016 net sales guidance on a constant
    dollar basis of 0% to 2% higher when compared to 2015 and 4% to 6%
    below the prior year on a reported basis.
  • The company reaffirms non-GAAP EPS guidance of $3.48 to $3.60 for the
    full year 2016, excluding Specified Items. Specified Items are now
    expected to be $0.57 per share as compared to our prior guidance of
    $0.12, primarily due to first quarter charges associated with our
    Venezuela business. 2016 GAAP EPS is expected to be in the range of
    $2.91 to $3.03.(3)

(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.”

(2) 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.”

(3) GAAP EPS is likely to be impacted by future
mark-to-market pension adjustments which cannot be estimated.

 
First Quarter 2016
(Dollars in Millions)
(UNAUDITED)
       
Three Months Ended March 31, % Change % Change Due to
Net Sales 2016  

% of
Total

  2015  

% of
Total

Reported  

Constant
Dollar

Volume   Price/Mix   Foreign
Exchange
Asia $500.6 52% $581.0 53% (14)% (9)% (9)% —% (5)%
Latin America 160.3 17% 204.4 19% (22)% (6)% (13)% 7% (16)%
North America/Europe 301.2 31% 309.0 28% (3)% (1)% (1)% —% (2)%
Net Sales $962.1 100% $1,094.4 100% (12)% (6)% (8)% 2% (6)%
 
  • In line with expectations, sales in all segments continued to be
    adversely impacted by the strengthening of the U.S. dollar compared to
    the first quarter of 2015. The foreign currency impact in Asia and
    Latin America was most notable in China, Mexico and Argentina.
  • The company showed sequential improvement in sales compared to the
    fourth quarter of 2015 of 1.5% on a constant dollar basis, and 0.5%
    below that quarter on a reported basis. On a sequential basis, the
    company delivered sales growth in Asia and Latin America, offset by
    declines in North America/Europe, compared to the fourth quarter of
    2015.
  • Within the Asia segment, high single digit sequential sales growth was
    mainly driven by continued momentum in China, with the company’s fully
    imported product line accounting for 45% of total sales in China by
    the end of the quarter. The rollout of product innovations and price
    increases supported the sequential growth in several other Asian
    markets.
  • First quarter 2016 sales versus the prior year quarter were lower in
    Asia as a result of more challenging market dynamics and select market
    share losses experienced in the second and third quarters of 2015. In
    China, increased price-based promotion and a shift in consumer
    preferences over the prior year have also negatively impacted sales.
    In the other Asian markets, macro-economic developments in combination
    with market share weakness and price-based promotional activities
    negatively impacted sales.
  • Latin America, excluding Venezuela, had a 7% sales improvement on a
    constant dollar basis compared to the prior year quarter. Growth was
    mainly driven by price increases to compensate for the continued
    currency devaluations, as well as higher sales of premium infant
    products in most markets. The company has seen solid performance in
    Mexico and Colombia, while other markets in the segment were impacted
    by macro-economic weakness and stronger competitor activities.
    Including the impact of a temporary suspension of shipments to
    Venezuela, constant dollar sales decreased 6% compared to the prior
    year quarter. On a reported basis, segment sales decreased 22%.
  • In North America/Europe, sales decreased compared to the prior year
    quarter. In the U.S., the company has seen some market share pressure
    and increased competitive activities, which adversely impacted sales.
    In Canada, continued strong growth was driven by significant market
    share gains in both infant and children’s products. Sales in Europe
    continue to increase, driven by market share gains in the growing
    allergy business.
 
First Quarter 2016
(Dollars in Millions)
(UNAUDITED)
           
Three Months Ended March 31, % Change  

% Change
Due to

Earnings Before Interest and Income Taxes (EBIT) 2016

% of
Sales

2015 % of Sales Reported  

Constant
Dollar

Foreign
Exchange

Asia $169.1 34% $231.5 40% (27)% (22)% (5)%
Latin America 40.8 26% 57.3 28% (29)% (11)% (18)%
North America/Europe 82.0 27% 78.3 25% 5% 9% (4)%
Corporate and Other (a) (141.8) (81.9) (73)% n/m n/m
GAAP EBIT 150.1 16% 285.2 26% (47)% (39)% (8)%
Specified Items (a) 94.2 15.0
Non-GAAP EBIT $244.3 $300.2 (19)% (10)% (9)%

(a) All Specified Items are included in Corporate
and Other.

  • Non-GAAP EBIT on a constant dollar basis was 10% below the prior year
    quarter. Lower sales resulted in adjusted gross profit declines of 6%
    on a constant dollar basis and 12% on a reported basis. Gross margin
    percentage was 64% for the first quarter of 2016, in line with the
    prior year quarter as well as the fourth quarter of 2015. Advertising
    and promotion increased by 11% on a constant dollar basis and 5% on a
    reported basis, mainly in China. Selling, general and administrative
    expenses declined 10% on a constant dollar, non-GAAP basis and 15% on
    a reported basis primarily due to Fuel for Growth. EBIT was 47% below
    the prior year quarter on a reported basis.
  • In Asia, EBIT on a constant dollar basis decreased by 22% when
    compared to the first quarter of 2015. This was mainly a result of
    lower sales and increased channel investments and promotional
    activities. In addition, the company made significantly higher
    advertising and promotion investments to support our innovations in
    the region. In China, investments were made to support the new product
    offerings. Adverse foreign exchange negatively impacted EBIT by 5%
    compared to the first quarter of 2015. EBIT decreased 27% on a
    reported basis.
  • In Latin America, EBIT on a constant dollar basis was 11% below the
    prior year. Excluding the impact of the Venezuela business, EBIT on a
    constant dollar basis increased compared to the prior year quarter by
    22%. Gross margin percentage was in line with the prior year quarter.
    Operating expenses were slightly lower on a constant dollar basis due
    to lower advertising and promotion spending. EBIT on a reported basis
    was 29% below the first quarter of 2015.
  • In North America/Europe, EBIT on a constant dollar basis was 9% above
    the prior year. EBIT improved despite lower sales, primarily due to
    higher margins from lower dairy costs and lower advertising and
    promotion and operational expenses. EBIT on a reported basis was 5%
    above the prior year quarter.
  • Corporate and Other expenses, excluding Specified Items, were 29%
    lower compared to the first quarter of 2015 primarily due to Fuel for
    Growth initiatives. Specified Items increased compared to the prior
    year due to long-lived asset impairment and devaluation charges
    related to the Venezuela business, Fuel for Growth and pension
    mark-to-market losses. Including the impact of Specified Items,
    Corporate and Other expenses increased 73% compared to the prior year
    period.

Cash Flow Items and Liquidity

  • Cash and cash equivalents were $1,702.3 million at March 31, 2016
    compared to $1,701.4 million at December 31, 2015. The company’s net
    debt was $1,313.4 million at March 31, 2016, consisting of debt less
    cash and cash equivalents.
  • Cash and cash equivalents increased $0.9 million in the three months
    ended March 31, 2016 as operating cash flows were utilized for capital
    expenditures and dividends. Cash and cash equivalents were further
    impacted by the devaluation in Venezuela.
  • Cash provided by operating activities was $160.1 million for the three
    months ended March 31, 2016 compared to $274.5 million in the prior
    year period. Cash flows reflect reduced income from lower sales and
    other changes in working capital.
  • Cash used in investing activities include capital expenditures of
    $55.6 million for the first quarter of 2016. This included investments
    in capacity expansion for manufacturing facilities in the U.S. and
    Europe.
  • Cash used in financing activities was $77.0 million for the three
    months ended March 31, 2016 compared to $80.3 million in the prior
    year period. Expenditures in the current year and the prior year were
    primarily related to dividend payments.
  • Interest expense, net, for the three months ended March 31, 2016 was
    $26.2 million, an increase from $13.8 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 interest rate swaps.
  • The weighted average shares outstanding for the three months ended
    March 31, 2016 was 186.7 million. During the first quarter, the
    company did not repurchase any additional shares of stock under the
    2015 share buyback program.
  • Dividends declared in the first quarter of 2016 were $0.4125 per
    share, in line with the prior year.

Outlook for 2016

The company reaffirms full year 2016 sales guidance on a constant dollar
basis of 0% to 2% higher compared to 2015 and expects this to translate
to 4% to 6% below the prior year on a reported basis. The company also
reaffirms non-GAAP EPS guidance of $3.48 to $3.60 for the full year
2016, excluding Specified Items.

“We continue to see foreign exchange as a likely significant headwind
for 2016,” said Mr. Jakobsen. He continued, “We remain focused on
executing our key strategies including the reshaping of our product
portfolio and channel participation in China, and protecting our ability
to invest behind key initiatives through the continued reduction of our
expense base.”

Specified Items are now expected to be $0.57 per share as compared to
our prior guidance of $0.12, primarily due to first quarter charges
associated with our Venezuela business. 2016 GAAP EPS is expected to be
in the range of $2.91 to $3.03.(4)

(4) GAAP EPS is likely to be impacted by future
mark-to-market pension adjustments which cannot be estimated.

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 first quarter 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, June 12, 2016, by calling 855-859-2056, or outside of North
America by calling +1-404-537-3406, passcode: 81881841. 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(5); (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.

(5) 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 March 31,
2016   2015
NET SALES $ 962.1 $ 1,094.4
Cost of Products Sold 347.6   393.5  
GROSS PROFIT 614.5 700.9
Operating Expenses:
Selling, General and Administrative 198.9 233.2
Advertising and Promotion 151.8 144.4
Research and Development 25.4 25.9
Other (Income)/Expenses—net 88.3   12.2  
EARNINGS BEFORE INTEREST AND INCOME TAXES 150.1 285.2
 
Interest Expense—net 26.2   13.8  
EARNINGS BEFORE INCOME TAXES 123.9 271.4
 
Provision for Income Taxes 47.2   64.3  
NET EARNINGS 76.7 207.1
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 4.0   (0.3 )
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 72.7   $ 207.4  
 
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.39   $ 1.02  
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.39   $ 1.02  
 
Weighted Average Shares—Diluted 186.7 202.9
Dividends Declared per Share $ 0.4125 $ 0.4125

(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
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
       
March 31, 2016 December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,702.3 $ 1,701.4
Receivables—net of allowances of $5.2 and $5.4, respectively 368.2 342.5
Inventories 486.9 484.9
Income Taxes Receivable 10.2 13.2
Prepaid Expenses and Other Assets 66.8   60.4  
Total Current Assets 2,634.4 2,602.4
Property, Plant and Equipment—net 927.0 964.0
Goodwill 120.0 126.0
Other Intangible Assets—net 50.5 54.9
Deferred Income Taxes—net of valuation allowance 124.1 118.5
Other Assets 160.8   132.3  
TOTAL $ 4,016.8   $ 3,998.1  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings $ 3.1 $ 3.0
Accounts Payable 473.9 481.5
Dividends Payable 77.7 77.8
Accrued Expenses 224.8 213.0
Accrued Rebates and Returns 378.1 376.8
Deferred Income—current 13.4 35.5
Income Taxes Payable 71.3   65.7  
Total Current Liabilities 1,242.3 1,253.3
Long-Term Debt 3,012.6 2,981.0
Deferred Income Taxes 6.6 8.7
Pension and Other Post-employment Liabilities 138.3 132.4
Other Liabilities 209.4   215.2  
Total Liabilities 4,609.2 4,590.6
COMMITMENTS AND CONTINGENCIES
 
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 191.6 and 191.4
issued, respectively
1.9 1.9
Additional Paid-in/(Distributed) Capital (552.8 ) (564.2 )
Retained Earnings 632.3 640.4
Treasury Stock—at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (354.2 ) (347.8 )
Total Shareholders’ Equity/(Deficit) (635.4 ) (632.3 )
Noncontrolling Interests 43.0   39.8  
Total Equity/(Deficit) (592.4 ) (592.5 )
TOTAL $ 4,016.8   $ 3,998.1  
 
 
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
     
Three Months Ending March 31,
2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 76.7 $ 207.1
Adjustments to Reconcile Net Earnings to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 24.9 24.1
Impairment of Long-Lived Assets 45.9
Other 36.0 22.9
Changes in Assets and Liabilities (23.4 ) 22.1
Pension and Other Post-employment Benefit Contributions   (1.7 )
Net Cash Provided by Operating Activities 160.1 274.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures (55.6 ) (46.1 )
Proceeds from Sale of Property, Plant and Equipment 0.1   0.2  
Net Cash Used in Investing Activities (55.5 ) (45.9 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings 0.4
Repayments of Short-term Borrowings (0.1 ) (4.0 )

Debt Issuance Costs

(0.1 )
Payments of Dividends (77.4 ) (76.0 )
Stock-based Compensation related Proceeds and Excess Tax Benefits 3.7 6.9
Stock-based Compensation Tax Withholdings (3.5 ) (7.2 )
Net Cash Used in Financing Activities (77.0 ) (80.3 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents (26.7 ) (12.1 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 0.9   136.2  
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,701.4   1,297.7  
End of Period $ 1,702.3   $ 1,433.9  
 
 

MEAD JOHNSON NUTRITION COMPANY
RECONCILIATION OF
NON-GAAP TO GAAP RESULTS

(Dollars in millions)
(UNAUDITED)

This news release contains non-GAAP financial measures, which may
include non-GAAP net sales, gross profit, certain components of
operating expenses, EBIT, earnings and earnings per share information.
The items included in GAAP measures, but excluded for the purpose of
determining the above listed non-GAAP financial measures, include
significant income/expenses not indicative of underlying operating
results, including the related tax effect and, at times, the impact of
foreign exchange. The above listed non-GAAP measures represent an
indication of the company’s underlying operating results and are
intended to enhance an investor’s overall understanding of the company’s
financial performance and ability to compare the company’s performance
to that of its peer companies. In addition, this information is among
the primary indicators the company uses as a basis for evaluating
company performance, setting incentive compensation targets and planning
and forecasting of future periods. This information is not intended to
be considered in isolation or as a substitute for financial measures
prepared in accordance with GAAP. Tables that reconcile non-GAAP to GAAP
disclosure follow and appear elsewhere in this presentation.

 
Reconciliation of Quarterly Sequential Sales Growth    
Fourth Quarter 2015 Sales $967.0
First Quarter 2016 Sales 962.1
Percentage Change in Sales on a GAAP basis (0.5)%
Less: Impact of Foreign Exchange 2.0%
Percentage Change in Sales in Constant Dollars 1.5%
                   
Net Debt                     March 31, 2016
Cash and Cash Equivalents $ 1,702.3
Short-term Borrowings (3.1)
Long-Term Debt (3,012.6)
Net Debt ($1,313.4)
 
Consolidated and Latin America Segment Results excluding Venezuela
    Three Months Ended March 31,   % Change  
          Constant
Dollar
Foreign Constant Impact of Excluding
Net Sales 2016 2015 Reported Exchange Dollar Venezuela Venezuela
Asia $ 500.6 $ 581.0 (14 %) (5 )% (9 %)
Latin America 160.3 204.4 (22 %) (16 )% (6 %) (13 %) 7 %
North America/Europe   301.2   309.0 (3 %) (2 )% (1 %)
Net Sales $ 962.1 $ 1,094.4 (12 %) (6 )% (6 %) (2 %) (4 %)
Earnings Before Interest and Income Taxes (EBIT)
Asia $ 169.1 $ 231.5 (27 %) (5 )% (22 %)
Latin America 40.8 57.3 (29 %) (18 )% (11 %) (33 %) 22 %
North America/Europe 82.0 78.3 5 % (4 )% 9 %

Contacts

Mead Johnson Nutrition Company
Investors:
Kathy MacDonald,
(847) 832-2182
kathy.macdonald@mjn.com
or
Media:
Christopher
Perille, (847) 832-2178
chris.perille@mjn.com

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