Mead Johnson Nutrition Company (MJN)

MJN 
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Mead Johnson Nutrition (MJN)

Q4 2011 Earnings Call

January 26, 2012 9:30 am ET

Executives

Kathy A. MacDonald - Vice President of Investor Relations

Peter G. Leemputte - Chief Financial Officer and Executive Vice President

Stephen W. Golsby - Chief Executive Officer, President and Director

Analysts

Jason English - Goldman Sachs Group Inc., Research Division

David Driscoll - Citigroup Inc, Research Division

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Edward Aaron - RBC Capital Markets, LLC, Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Mead Johnson Nutrition Fourth Quarter 2011 Earnings Conference Call. My name is Janeda, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Kathy MacDonald, Vice President, Investor Relations. Please proceed, Kathy.

Kathy A. MacDonald

Thank you, and good morning. Welcome to Mead Johnson's Fourth Quarter Conference Call. With me today are Steve Golsby, our Chief Executive Officer; and Pete Leemputte, our Chief Financial Officer.

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, quarterly reports on Form 10-Q and current reports on Form 8-K, 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 I will now turn the call over to Steve.

Stephen W. Golsby

Thank you, Kathy, and good morning, everyone. As you read in our press release, we concluded 2011 with continued strong performance. We delivered an exceptional year of sales and earnings growth.

Fourth quarter non-GAAP earnings of $0.52 per share on 14% constant dollar sales growth were in line with our expectations. As expected, higher dairy prices, greater demand generation investments and the timing of pension settlement expense and tax accruals more than offset the benefit of sales growth in the quarter. Our fourth quarter results for full year non-GAAP earnings to $2.79 per share, an increase of 15% from the prior year.

Let me highlight some of our key achievements in 2011. First, we delivered 14% constant dollar sales growth on a full year basis, setting a new growth record for the company in recent times. This growth was led by our Asia/Latin America segment, which posted 22% growth excluding foreign exchange, now accounts for 66% of our global sales, up from 61% in 2010.

In the markets where we compete, our sales grew at the highest rate of any of the 5 major global competitors during the year. Sales in China/Hong Kong grew over 40%, and it became our top global market in 2011, with sales of over $1 billion. North America/Europe segment grew by 3% from a combination of both volume and price. The majority of this growth came from the United States despite continued declines in birth and formula consumption.

We delivered gross margins of 63% for the year, a drop of only 40 basis points from 2010 despite inflationary pressures on our product costs that approached 12%. Higher pricing and record productivity helped to mitigate the commodity headwinds, which were largely seen in the second half of the year. Our supply chain team exceeded their productivity goal by delivering over 4% savings on cost of goods sold.

We continue to invest competitively in sales force expansion, advertising and promotion, marketing and research and development and have seen results of market share gains measured on a value basis across Asia/Latin America.

We completed our global SAP implementation and shared service transition in October. This was the final step on our road to full independence from Bristol-Myers Squibb. The successful execution was the result of a tremendous effort led by dedicated employees around the world. This project is a critical cornerstone of our plans to drive global operational efficiencies and reduced general and administrative spending from 8.5% of sales in 2011 to 6.5% by 2015.

In the fourth quarter, we opened our third Mead Johnson Pediatric Nutrition Institute in Guangzhou, China, adding to the existing institutes in Latin America and the U.S. These centers provide additional capabilities to develop nutritional science and new products, and facilitate strong relationships with key scientific and regulatory stakeholders around the world.

In December, we announced the decision to build our first Asia spray dryer and technology center, which will be located in Singapore. This is the biggest capital expenditure in our company's history and needed to support the future growth of our fast-growing Asia region.

Read the rest of this transcript for free on seekingalpha.com