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Mead Johnson (MJN) Q3 Earnings: Disappointment in Store?

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Mead Johnson Nutrition CompanyMJN is scheduled to report third-quarter 2016 results on Oct 27, before the opening bell.

Last quarter, the company posted a positive earnings surprise of 12.82%. Further, Mead Johnson's earnings outpaced the Zacks Consensus Estimate in the past four quarters, with an average beat of 4.34%.

Let's see how things are shaping up prior to this announcement.

MEAD JOHNSON NU Price and EPS Surprise

MEAD JOHNSON NU Price and EPS Surprise | MEAD JOHNSON NU Quote

Factors at Play

Amid a gloomy macro-economic scenario, Mead Johnson reported moderate second-quarter results. The tough global economic environment hampered growth in the last quarter and may continue to pose challenges in going ahead. Currency headwinds and weak economic growth in the developing economies of Asia and Latin America are expected to mar the company's performance. We are also disappointed with the company's delay in its foreign trade process last quarter. We believe reduced shipments to Venezuela and requirement for additional product testing prior to importation in China are going to affect company's forthcoming results as well.

On an optimistic note, the company's promising outlook indicates a rebound. Management is particularly encouraged by its Fuel for Growth program, which successfully reduced selling, general and administrative (SG&A) expenses in the second quarter. Going forward, management expects savings and its cost-reduction plan through Fuel for Growth to provide additional investment flexibility. This we believe will get reflected in the third-quarter results as well.

As a part of this initiative, Mead Johnson postponed some advertising and promotion (A&P) expenditure and shifted focus on trade investments. Management wants to lower A&P, strengthen its focus on digital marketing and also gain a competitive edge in the baby store and e-commerce channels.

In terms of geographic bases, Mead Johnson saw an improved performance in its North America and Europe segment compared to the first quarter. So we expect a much better trend in the company's the yet-to-be reported third quarter result.

Nevertheless, Mead Johnson's focus on China's pediatric market raises optimism. Management feels that the company's position in the country is improving, courtesy of the launch of products in super high premium and imported product segments.

Earnings Whispers

Our proven model does not conclusively show that Mead Johnson is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Mead Johnson has an Earnings ESP of -2.30%.That is because the Most Accurate estimate is 85 cents while the Zacks Consensus Estimate is pegged at 87 cents.

Zacks Rank: Mead Johnson has a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat this quarter:

Glaukos Corporation GKOS has an earnings ESP of +200% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Edward Lifesciences Corp. EW has an earnings ESP of +2.94% and a Zacks Rank #2.

Invuity, Inc. IVTY has an earnings ESP of +8.07% and a Zacks Rank #2.

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EDWARDS LIFESCI (EW): Free Stock Analysis Report

MEAD JOHNSON NU (MJN): Free Stock Analysis Report

GLAUKOS CORP (GKOS): Free Stock Analysis Report

INVUITY INC (IVTY): Free Stock Analysis Report

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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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