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Mead Johnson Nutrition Company (MJN)
Q3 2010 Earnings Call Transcript
October 28, 2010 9:30 am ET
Kathryn Chieger – VP, IR
Steve Golsby – President & CEO
Pete Leemputte – SVP & CFO
Terry Bivens – JPMorgan
Ed Aaron – RBC Capital Markets
Bryan Spillane – Bank of America
Vincent Andrews – Morgan Stanley
David Driscoll – Citi Investment Research
Tim Ramey – D.A. Davidson
Robert Moskow – Credit Suisse
Eric Katzman – Deutsche Bank
Andrew Sawyer – Goldman Sachs
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Thank you and good morning. Welcome to Mead Johnson’s Third Quarter Conference Call. With me today at our global operations center in Evansville, Indiana are Steve Golsby, our CEO and Pete Leemputte, our CFO.
Before we get started let me remind everyone that our comments will include forward looking statements about our future results. Including statements about our financial prospects and projections, new product launches and market conditions that constitute forward looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Keep in mind that our actual results may differ materially from expectations as of today, due to various factors including those listed in our annual report on form 10-K for 2009, quarterly reports on form 10-Q, quarterly reports on form 8-K and registration statements. In each case as filed with or furnished to the Securities and Exchange Commission and our earnings release issued this morning. All of which are available upon request or on our website at meadjohnson.com.
In addition, any forward looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Given that we are in the midst of the earnings reporting season, we will be respectful of your time and keep our call to 45 minutes. That said, I will turn the call over to Steve.
Thank you, Kathryn and good morning everyone. As Kathryn mentioned we’re speaking to you from Evansville, where this week I was pleased to participate in the grand opening of our new Pediatric Nutrition Institute. This state-of-the-art facility, which includes a scalable pilot plant, will further enhance our research and development capabilities and enable us to accelerate the pace of product innovation, one of the key elements in our growth strategy.
Turning to our financial results, this morning we reported another excellent quarter. Non-GAAP earnings per share were up 8% in the third quarter to $0.57 on 15% constant dollar sales growth. We are very pleased with our earnings performance given higher commodity and manufacturing costs along with an 18% increase in operating expenses.
Higher spending was primarily behind demand generation investments in advertising and promotions, and for an expanded sales force in China and selected other emerging markets, as well as costs to build our standalone company infrastructure. While the refinancing of our debt last year has lowered interest expense, this benefit was more than offset by a pension settlement charge and higher taxes. Pete will give you more details on our financials in a few minutes.
Returning to our strong sales growth, of notable importance is the fact that we delivered double digit gains in all regions. Constant dollar sales for our Asia Latin America segment grew 16% to $490 million. Volume added 11% and price accounted for the remaining 5%. This remains particularly impressive given the segments five-year track record of delivering mid-teens sales growth.
A number of our markets were up well in advance of that rate, most notably China, Hong Kong and Brazil. While China continues to be the highest dollar contributor and the strength of the business in Asia grabs the headlines, all of our Latin America markets reported double digit sales growth. We are benefiting not only from overall market growth in these countries, but from share gains as well.
Outside of the United States, as reported by Nelson, our 11 largest countries in aggregate have increased sales at a rate in excess of market growth and thus grown every quarter for the past two years. Our share growth is coming from new product innovation supported by a powerful brand proposition and increased investments, as well as from expansion in geographic coverage. Our expansion efforts in China continue on schedule, and with great affect, and we will be fully resourced in close to 200 cities by year end.
Constant dollar sales for the North America Europe segment were up 13% in the third quarter driven by volume. Unlike Asia and Latin America, we are not experiencing industry growth in our largest market, the United States. In fact, quite the contrary. The increase in sales was largely the result of a favorable comparison, due to inventory fluctuations.
In the third quarter a year ago, retailers in the US were reducing inventories to normal levels following the channel fill to the launch of Enfamil premium in April. We also started to reduce inventories in Europe last year, from the high levels carried by Bristol Myers Squibb, our regional distributor.