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Mead Johnson Nutrition (MJN)
Q1 2011 Earnings Call
April 28, 2011 9:30 am ET
Kathy MacDonald - Vice President of Investor Relations
Peter Leemputte - Chief Financial Officer and Senior Vice President
Stephen Golsby - Chief Executive Officer, President and Director
Amit Sharma - BMO Capital Markets U.S.
Diane Geissler - Credit Agricole Securities (USA) Inc.
Vincent Andrews - Morgan Stanley
Terry Bivens - JP Morgan Chase & Co
Eric Katzman - Deutsche Bank AG
Robert Moskow - Crédit Suisse AG
Timothy Ramey - D.A. Davidson & Co.
Bryan Spillane - BofA Merrill Lynch
Edward Aaron - RBC Capital Markets, LLC
David Driscoll - Citigroup Inc
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Thank you, and good morning. Welcome to Mead Johnson's First Quarter Conference Call. With me today 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 2010, quarterly reports on Form 10-Q, current 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 time 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. I will now turn to Steve -- the call over to Steve.
Thank you, Kathy, and good morning, everyone. Well, 2011 is off to a great start. As you have likely read in our press release, in the first quarter, sales of $900 million grew by 18% or 15%, excluding the impact of foreign exchange. This is the highest quarterly growth recorded for many years and is testimony to our strategy.
Our growth was led by the strength of our business in emerging markets, but also by improved performance in the U.S. In addition, strong gross margins, the timing of demand-generation investments and the slightly lower tax rate versus 2010 each contributed to impressive financial results.
The fundamental drivers in our strategy and operations have not changed, so I'll keep my comments brief and only address key highlights. Sales for the Asia/Latin America markets grew at a rate of 27% or 22%, excluding the impact of foreign exchange. This segment now accounts for over 64% of sales, up from 60% in the first quarter of 2010. This exceptional performance was led by China and Hong Kong, where sales grew well in excess of our segment average and where we continue to see gains in market share.
I recently took several secondary cities in China that we have entered by our systematic step change program. As you may recall, this step change program expands our direct presence into more cities, with a full complement of advertising and promotional support and the addition of medical and trade sales staff. At year end 2010, we had a direct presence in 193 cities and intend to expand into at least another 50 this year.
I traveled to both the western and eastern regions of China and was struck by the rapid development of world-class infrastructure and by the obvious strength of economic activity. We visited several leading hospitals and visited many retail outlets, including branches of international chains. The category in which Mead Johnson competes is growing very strongly in all of these cities, and our own brands are performing well ahead of expectations.
While the step change program expands our geographic footprint, we are pleased that 80% of our growth continues to come from cities where we had a full presence in the prior year quarter. Our brand equity, science and product quality, geographic footprint expansion and strong execution have all contributed to Mead Johnson achieving market share leadership in China/Hong Kong, and we continue to believe that significant growth will be sustained for many years. While China is our largest business outside the U.S., I want to highlight that nearly all of our Latin America markets posted double-digit growth.
In the North America/Europe segment, both recorded and constant dollar sales grew by 5%. Sales in the U.S. increased at a rate above the segment average, but were partially offset by lower sales in Europe, distorted by our transition to a new distribution model. We're very pleased with the strong U.S. performance, as it was largely driven by higher market share from product and packaging innovation, as well as a benefit from a competitive product recall last September.