Mead Johnson (MJN) Misses Q4 Earnings, Sales; Guides '17

Mead Johnson Nutrition Company MJN reported fourth-quarter 2016 adjusted earnings per share (EPS) of 78 cents, missing the Zacks Consensus Estimate of 83 centsby 6%. However, adjusted earnings were in line with the prior-year quarter figure.

Full-year adjusted earnings came in at $3.40 per share, down 1.2% year over year. The figure also missed the Zacks Consensus Estimate of $3.45 by 1.4%.

Including the impact of certain one-time items, reported net earnings were 91 cents per share, up 35.8% year over year. Full-year net earnings were $2.92 per share, highlighting an increase of 10.7%.

Mead Johnson Nutrition Company Price and EPS Surprise

Mead Johnson Nutrition Company Price and EPS Surprise | Mead Johnson Nutrition Company Quote

Net Sales

Net sales in the reported quarter grossed $901.6 million, down 6.7% year over year (down 3% year over year at CER, or constant exchange rate). The top line also missed the Zacks Consensus Estimate of $930 millionby 3.1%.

Full-year revenues came in at $3.74 billion, almost in line with the Zacks Consensus Estimate of $3.77 billion.

Sales in the reported quarter were affected by 6% lower volume and a 4% unfavorable foreign exchange rate impact. However, fourth-quarter sales were supported by a 3% benefit from favorable price mix.

Segments in Detail

Currently, the company has three reportable segments - Asia, Latin America and North America/Europe.

Sales in Asia (representing 48% of total sales) declined 7% year over year (down 4% at CER) to $463.9 million. While poor volume affected this segment's revenues by 5%, unfavorable foreign exchange rate impacted sales by 3%. However, China experienced strong sales growth, reflecting positive momentum from new product launches and recovery of prior-quarter customs clearing delays. Sales in other Asian markets, including the Philippines, were hampered by continued adverse market dynamics.

In Latin America (17%), sales declined 8% year over year (up 4% at CER) to $156.3 million. Foreign exchange hurt growth in this segment by 12%, primarily in Argentina and Mexico. Volume dented sales by 10%. However, positive pricing gains in the overall segment offset volume losses and suspended shipments to Venezuela. Excluding the impact of suspended shipments to Venezuela, constant currency sales growth was 4%.

In North America/Europe (35%), sales dropped 6% to $308.4 million, on account of foreign exchange and volume marring sales growth by 1% and 8%, respectively. Within this segment, the company experienced continued market share weakness in the U.S. and increased competitive activities. However, its market share position strengthened in Canada in the reported quarter.


Adjusted gross margin at CER during the reported quarter was 64%, up 10 basis points (bps) on the back of lower dairy input cost.

Adjusted operating margin improved 66 bps year over year to 27.7%, on account of a 6% drop in adjusted selling, general and administrative expenses. This implies a 2.7% drop in advertising and promotion expenses and 21% decline in research and development expenses.

Balance Sheet and Cash Flow

Mead Johnson exited the year with cash and cash equivalents of $1.79 billion, compared with $1.70 billion in the prior-year period. Long-term debt was $2.97 billion at the end of 2016, a slight drop from $2.98 billion recorded in 2015. The company generated operating cash flow of $691.6 million for 2016, compared with $909.9 million in the prior year.

2017 Guidance

Mead Johnson has issued its guidance for 2017. The company expects change in net sales in the range of -3% to 0% compared with 2016 on a reported basis and in the range of -1% to +2% compared with 2016 on CER basis. Management also expects 2017 reported EPS in the band of $3.05-$3.20 and non-GAAP EPS of $3.35-$3.50 on a CER basis.

Our Take

Mead Johnson's fourth-quarter report was quite disappointing, with both the top and the bottom line missing the Zacks Consensus Estimate. The company's sales were quite dismal, with each of its segments posting weak numbers.

In emerging markets, turmoil in Brazil, Venezuela and Argentina dented overall growth. Foreign currency also remained a major dampener across all regions. On a brighter note, lower dairy input costs boosted gross margin at CER. The company's Fuel for Growth project also played a major role in boosting profits.

Zacks Rank & Key Picks

Mead Johnson currently has a Zacks Rank #4 (Sell). Better - ranked medical stocks are Cardiovascular Systems, Inc. CSII , Neogen Corp. NEOG and OraSure Technologies, Inc. OSUR . Cardiovascular Systems sports a Zacks Rank #1 (Strong Buy) while Neogen and OraSure carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Cardiovascular Systems rallied over 100% in the past one year, way higher than the S&P 500's 22.1%. It has a positive average earnings surprise of 31.8%.

Neogen gained 27.5% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared to the industry average of 15.2%.

OraSure Technologies surged 57.9% in the last one year in comparison to the S&P 500. The company has a stellar four-quarter average earnings surprise of over 100%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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