Mead Johnson Nutrition Company
) reported a solid third-quarter 2013 with adjusted earnings per
share (EPS) of 91 cents, up 28.2% year over year and
significantly surpassing the Zacks Consensus Estimate of 80
This improvement was primarily on the back of higher sales and
gross margin, partially offset by a higher effective tax rate and
higher demand-generation investments. However, including the
impact of certain one-time items, reported net earnings came in
at $161.6 million or 79 cents a share, up 15.2% and 14.4% year
over year, respectively.
Revenues in the reported quarter were $1.047 billion,
increasing 14% year over year (up 16% at constant exchange rates
or CER). The figure was also ahead of the Zacks Consensus
Estimate of $999 million.
While sales in Asia/Latin America, the company's largest
geographical segment (representing 70% of the company's total
sales in the third quarter), surged 19% year over year (up 21% at
CER) to $768 million, North America/Europe (contributing for the
rest) sales were up 2% (same at CER) to $278.8 million.
Gross margin during the reported quarter expanded 389 basis
points (bps) to 65.1% with 20.8% increase in gross profit to
$65.1 million. Adjusted operating margin contracted 488 bps year
over year to 22.8%, on account of a 5.6% increase in selling,
general and administrative expenses to $22.6 million, a 15.3%
rise in research and development expenses to $24.8 million and an
18.0% increase in advertising and promotion-related expenses to
Balance Sheet and Cash Flow
exited the quarter with cash and cash equivalents of $985.2
million, down from $1.042 billion at the end of fiscal 2012 and
had long-term debt of $1.516 billion. Year-to-date, the company
generated operating cash flow of $592 million compared with the
year-ago figure of $440.1 million.
Based on a strong third quarter, Mead Johnson raised its
fiscal-2013 EPS guidance to the range of $3.30−$3.37 from the
earlier guided $3.22−$3.30. The current Zacks Consensus Estimate
for EPS of $3.27 falls below the guided range. In addition,
constant dollar sales growth from the company's core operations
(excluding businesses exited in late 2012) is expected to be in
the range of 9% to 10%.
We note that Mead Johnson had witnessed a drop in share prices
over the last three months along with heavy regulatory headwinds
in the key Chinese market. However, the latest quarter showed
signs of rebound with a top- and bottom-line beat.
Mead Johnson run into trouble in July this year with the
antitrust review of resale prices commenced by the Bureau of
Price Supervision and Anti-Monopoly of China's National
Development and Reform Commission (NDRC). The company and its
competitors were accused of breaching anti-monopoly laws.
As a reaction to the probe, Mead Johnson, on Jul 16, declared
a 7-15% price cut in the country for its leading products.
Following the resolution of the antitrust review on Aug 6, the
company slashed its guidance for reported EPS for the ongoing
Following the hitch, Mead Johnson is working hard to regain
investors' faith. Last September, the company declared that its
board of directors has authorized a new share repurchase program
of up to $500 million of the company's outstanding common
Currently, Mead Johnson carries a Zacks Rank #2 (Buy). Other
medical stocks like
Align Technologies Inc.
Boston Scientific Corp.
Bio-Rad Laboratories, Inc.
) are also worth considering. While Align carries a Zacks Rank #1
(Strong Buy), both Boston Scientific and Bio-Rad sport a Zacks
Rank #2 (Buy).
ALIGN TECH INC (ALGN): Free Stock Analysis
BIO-RAD LABS -A (BIO): Free Stock Analysis
BOSTON SCIENTIF (BSX): Free Stock Analysis
MEAD JOHNSON NU (MJN): Free Stock Analysis
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