Mead Johnson Nutrition Delivers Earnings Per Share Above Guidance for Fourth Quarter and Full Year 2015; Provides 2016 Guidance

GLENVIEW, Ill.–(BUSINESS WIRE)–Mead Johnson Nutrition Company (NYSE: MJN) today announced its financial
results for the quarter and year ended December 31, 2015.

“I am pleased with the sequential improvements in our underlying
business since our last earnings call, despite a challenging operating
environment across many of the emerging markets,” said Kasper Jakobsen,
Chief Executive Officer. “Our two biggest businesses in China and the
United States both posted sales above the levels experienced in the
third quarter. I am also pleased that our Fuel for Growth initiative and
our focus on operating expenses allowed us to deliver earnings per share
above expectations within the fourth quarter.”

Highlights are as follows:

  • Excluding the impact of intentionally reduced shipments into
    Venezuela, sales in the fourth quarter of 2015 rose 1% over the third
    quarter of 2015(1) on a constant dollar(2) basis.
  • Fourth quarter sales were 6% below the prior year quarter on a
    constant dollar basis and 12% below the prior year quarter on a
    reported basis.
  • Full year sales were 2% below the prior year on a constant dollar
    basis and 8% below the prior year on a reported basis.
  • Non-GAAP gross margin for the fourth quarter of 63.9% was 200 basis
    points higher than the prior year quarter, mainly due to lower dairy
    input costs. Gross margin on a GAAP basis was 62.9%, up from 60.7% in
    the prior year quarter.
  • Non-GAAP EBIT in the fourth quarter was 3% below the prior year
    quarter on a constant dollar basis. Inclusive of a $25 million
    provision related to our Fuel for Growth operating expense initiative,
    on a GAAP basis EBIT was 7% below the prior year quarter.
  • Full year 2015 non-GAAP EBIT was in-line with 2014 on a constant
    dollar basis. On a GAAP basis, EBIT was 5% below the prior year.
  • During the fourth quarter, the company repurchased 10.7 million shares
    of stock under an accelerated share repurchase agreement. As of
    December 31, 2015, 186.4 million shares were outstanding.
  • Based on weighted average shares outstanding of 189.8 million,
    non-GAAP Earnings Per Share (EPS) for the fourth quarter was $0.78;
    GAAP EPS was $0.67.
  • 2015 full year non-GAAP EPS was $3.44, slightly above the top end of
    the guidance range. 2015 GAAP EPS was $3.27.
  • Full year 2016 constant dollar sales are expected at 0% to 2% compared
    to 2015. Assuming exchange rates remain at current levels, this will
    translate to 4% to 6% below prior year on a reported basis.

(1) Fourth quarter sales were down 1% from the third
quarter on a reported basis, and flat on a constant dollar basis,
compared to the third quarter.
Excluding the impact of sales in
Venezuela, fourth quarter sales on a constant dollar basis increased 1%
compared to the third quarter.

(2) Constant dollar figures exclude the impact of changes
in foreign currency exchange rates and are reconciled in the tables in
the body of this earnings release. Non-GAAP or as adjusted results
exclude Specified Items. For a description of Specified Items, and a
reconciliation of non-GAAP to GAAP, see the schedules titled
“Reconciliation of Non-GAAP to GAAP Results.”

  • Full year 2016 non-GAAP EPS is expected in the range of $3.48 to
    $3.60, excluding expected future costs related to Fuel for Growth and
    mark-to-market pension adjustments which are not reflected in this
    guidance. The company expects to incur charges approximating $25 to
    $30 million associated with the Fuel for Growth program in 2016.
    Specified Items including charges related to Fuel for Growth are
    expected to be approximately $0.12 per share. Therefore GAAP EPS is
    expected to be in the range of $3.36 to $3.48, excluding
    mark-to-market pension adjustments which cannot be estimated. EPS
    guidance includes an estimated adverse impact of current exchange
    rates as of January 2016, which is expected to be approximately $0.40
    per share.
     
Fourth Quarter 2015
(Dollars in Millions)
(UNAUDITED)
 
Three Months Ended December 31, % Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 468.0 48 % $ 548.6 50 % (15 )% (10 )% (7 )% (3 )% (5 )%
Latin America 169.8 18 % 207.8 19 % (18 )% (4 )% (9 )% 5 % (14 )%
North America/Europe 329.2   34 % 337.8   31 % (3 )% % 1 % (1 )% (3 )%
Net Sales $ 967.0   100 % $ 1,094.2   100 % (12 )% (6 )% (5 )% (1 )% (6 )%
 
  • Sales in all segments were adversely impacted by a strengthening
    dollar, most notably in China, Mexico and Canada.
  • In Asia, improvement was seen in Greater China in the fourth quarter
    of 2015 when compared to the third quarter of 2015 due to the recently
    launched fully-imported range of products.
  • Further, sales in the current quarter were below the prior year
    quarter mostly due to price-based promotions in Greater China and
    market share weakness in Malaysia and Thailand. Sales in the
    Philippines increased compared to the prior year quarter.
  • In Latin America sales decreased compared to the prior year quarter
    primarily due to intentionally reduced shipments into Venezuela
    prompted by delayed settlement of inventory related U.S. dollar
    payables. Sales in the remainder of the segment increased on a
    constant dollar basis as sales of premium infant products increased in
    Mexico and Colombia and the ability to implement inflation-related
    price increases in Argentina. The sales impact of these factors was
    offset by the effect of price-based competition on the volume of Milk
    Modifier brands in Mexico.
  • The North America/Europe segment sales were flat in the fourth quarter
    of 2015 when compared to a strong 2014, on a constant dollar basis. On
    a sequential basis, continued momentum in North America children’s
    products and European allergy products resulted in an increase in
    sales in the fourth quarter of 2015 when compared to the third quarter
    of 2015.
 
Three Months Ended December 31,
Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

 

%
Change

Asia $ 139.9 30 % $ 195.3 36 % (28 )%
Latin America 34.2 20 % 46.4 22 % (26 )%
North America/Europe 96.9 29 % 90.1 27 % 8 %
Corporate and Other (75.2 ) (122.2 ) 38 %
EBIT as reported 195.8   20 % 209.6   19 % (7 )%
Specified Items 23.8 42.4
Impact of F/X 25.5    
EBIT as adjusted $ 245.1   $ 252.0   (3 )%
 
  • Non-GAAP EBIT was 3% below the prior year quarter on a constant dollar
    basis. Gross margin improvements were attributable to favorable dairy
    costs across all segments but were not sufficient to fully offset the
    impact of reduced sales and increased brand investments.
  • In Asia, operational expenses increased due to investments in growth
    initiatives, notably the fully-imported product launches in China and
    the establishment of plastic packaging formats across a number of
    markets. Inflationary cost increases also impacted EBIT.
  • In Latin America, operational expenses were higher on a constant
    dollar basis due to investments in brand support. Excluding the impact
    of the Venezuela business, the segment’s EBIT margin increased
    compared to the prior year quarter.
  • North America/Europe delivered higher EBIT primarily due to improved
    gross margins.
  • Corporate and Other expenses decreased on a reported basis primarily
    due to actuarial gains in the current quarter compared to actuarial
    losses in the prior year quarter and lower provisions for incentive
    compensation in the current quarter. Provisions related to Fuel for
    Growth partially offset lower operating expenses.
  • On a sequential non-GAAP basis, Corporate and Other expenses were
    lower mainly as a result of the Fuel for Growth initiative.
     
Full Year 2015
(Dollars in Millions)
(UNAUDITED)
 

Years Ended December 31,

% Change % Change Due to
  % of     % of   Constant     Foreign
Net Sales 2015 Total 2014 Total Reported Dollar Volume Price/Mix Exchange
Asia $ 2,039.0 50% $ 2,278.4 52 % (11 )% (8 )% (6 )% (2 )% (3 )%
Latin America 757.1 19% 867.5 20 % (13 )% 3 % (4 )% 7 % (16 )%
North America/Europe 1,275.2   31% 1,263.4   28 % 1 % 4 % 1 % 3 % (3 )%
Net Sales $ 4,071.3   100% $ 4,409.3   100 % (8 )% (2 )% (3 )% 1 % (6 )%
 
  • Sales in all segments were adversely impacted by a strengthening
    dollar, most notably in China, Mexico and Canada.
  • In Asia, increased price-based promotional competition enabled by
    lower dairy input costs resulted in sales below prior year level.
  • Especially China, Thailand and Malaysia experienced weakness with the
    Philippines and Vietnam performing relatively better. The launch of a
    fully-imported range of products helped the China business show some
    improvements towards the end of the year.
  • In Latin America, sales increased on a constant dollar basis in almost
    all markets. The primary driver was better pricing in Colombia and
    Argentina. Mexico’s performance was negatively impacted as a result of
    price-based promotional competition in the Milk Modifiers category.
    However, across the region pricing failed to fully offset the adverse
    impact of foreign exchange.
  • Shipments to Venezuela were intentionally reduced in the second half
    of the year as access to dollars required to settle intercompany
    payables became more difficult.
  • North America/Europe delivered sales growth in virtually all markets
    on a constant dollar basis. Key drivers included a favorable change in
    product mix as well as better realized pricing throughout the segment.
 

Years Ended December 31,

Earnings Before Interest and Income Taxes (EBIT) 2015  

% of
Sales

  2014  

% of
Sales

 

%
Change

Asia $ 682.0 33 % $ 818.7 36 % (17 )%
Latin America 175.2 23 % 199.0 23 % (12 )%
North America/Europe 361.8 28 % 291.0 23 % 24 %
Corporate and Other (282.8 ) (320.4 ) 12 %
EBIT as reported 936.2   23 % 988.3   22 % (5 )%
Specified Items 44.6 63.3
Impact of F/X 67.5    
EBIT as adjusted $ 1,048.3   $ 1,051.6   %
 
  • Non-GAAP EBIT was broadly in-line with the prior year on a constant
    dollar basis. The impact of reduced sales and increased
    demand-generation spending was offset by reduced dairy costs and lower
    operating expenses.
  • In Asia, operating expenses increased due to higher expenditures on
    advertising and promotion required to support competitiveness and new
    product launches. Overall, these factors combined with lower sales
    negatively impacted profit margins for the segment.
  • Latin America EBIT margin was similar to the prior year as sales
    decreases and investment spending were offset by improved gross margin
    due to lower dairy input costs.
  • North America/Europe EBIT margin strengthened due to increased
    volumes, improved product mix and lower dairy input costs.
  • Corporate and Other expenses decreased in the current year from lower
    incentive compensation, savings from the Fuel for Growth operating
    expense initiative, and reduced losses related to the re-measurement
    of our pension and other post-employment benefit plans.

Cash Flow Items and Share Repurchases

  • Cash and cash equivalents increased by $403.7 million since
    December 31, 2014 and were $1,701.4 million at December 31, 2015.
  • Operating cash flow was $899.2 million in the twelve months ended
    December 31, 2015 compared to $793.4 million in the prior year period.
    Cash flows increased due to working capital improvements which were
    substantial enough to more than offset the impact of $90.1 million in
    contributions to pension plans. 2014 cash outflow related to
    innovation and the start-up of the manufacturing facility in Singapore
    did not recur in 2015.
  • Investing activities include capital expenditures of $173.7 million
    for 2015. This included investments in capacity expansion for
    manufacturing facilities in the U.S. and our European plant to
    accommodate demand for new products.
  • Financing activities include cash outflows of $1,437.0 million for the
    repurchase of approximately 16.4 million shares of stock under the
    company’s 2013 and 2015 share repurchase authorizations with
    additional settlement under the accelerated share repurchase agreement
    expected in 2016. These purchases were funded with long-term debt of
    $1.5 billion issued in 2015. Long-term debt was approximately $3.0
    billion as of December 31, 2015.
  • The company’s net debt was $1,282.6 million, consisting of debt and
    cash and cash equivalents.
  • Interest expense, net, for 2015 was $65.0 million, an increase from
    $60.3 million in 2014 due to the incremental interest on the newly
    issued long-term debt, partially offset by the impact of the interest
    rate swaps.
  • Dividends declared in 2015 were $1.65 per share, a 10% increase over
    2014.

Outlook for 2016

The company announced full year guidance for 2016. It expects full year
constant dollar sales to be in a range of 0% to 2% above 2015 and
non-GAAP EPS in the range of $3.48 to $3.60 based on current exchange
rates.

“As discussed during our Investor Day in October of last year we view
2016 as a year of transition as we invest heavily in reshaping our
portfolio in China and boost investment in new channels there. We expect
modest, single digit EPS growth as a strengthening dollar will continue
to challenge the translation of our results. To help investors better
understand our underlying performance we will provide constant dollar
profit measures through the year,” said Kasper Jakobsen, Chief Executive
Officer. He added, “We expect sales growth to accelerate in the second
half of the year reflecting the phasing of growth initiatives and
investments. Our Fuel for Growth initiative is a critical element of our
strategy to help offset the impact of foreign exchange and protect
funding for new brand introductions.”

The company expects to incur charges approximating $25 to $30 million
associated with the Fuel for Growth program in 2016. Specified Items
including charges related to Fuel for Growth are expected to be
approximately $0.12 per share. Therefore GAAP EPS is expected to be in
the range of $3.36 to $3.48, excluding mark-to-market pension
adjustments which cannot be estimated. EPS guidance includes an
estimated adverse impact of current exchange rates as of January 2016,
which is expected to be approximately $0.40 per share.

Conference Call Scheduled

Mead Johnson will host a conference call at 8:30 a.m. U.S. Central Time,
during which company executives will review the financial results for
the fourth quarter and full year 2015. The call will be broadcast with
accompanying slides over the Internet at http://investors.meadjohnson.com.
Security analysts and investors wishing to participate by telephone
should call 877-359-9508, pass code: Mead Johnson. Callers outside of
North America should call +1-224-357-2393 to be connected. A replay of
the conference call will be available through 11:30 p.m. U.S. Central
Time Sunday, March 13, 2016, by calling 855-859-2056, or outside of
North America by calling +1-404-537-3406, passcode: 9288784. The replay
will also be available at meadjohnson.com.

Forward-Looking Statements

Certain statements in this news release are forward-looking as defined
in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements may be identified by the fact they use words
such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,”
“project,” “guidance,” “intend,” “plan,” “believe” and other words and
terms of similar meaning and expression. Such statements are likely to
relate to, among other things, a discussion of goals, plans and
projections regarding financial position, results of operations, cash
flows, market position, product development, product approvals, sales
efforts, expenses, capital expenditures, performance or results of
current and anticipated products and the outcome of contingencies such
as legal proceedings and financial results. Forward-looking statements
can also be identified by the fact that they do not relate strictly to
historical or current facts. Such forward-looking statements are based
on current expectations that involve inherent risks, uncertainties and
assumptions that may cause actual results to differ materially from
expectations as of the date of this news release. These risks include,
but are not limited to: (1) the ability to sustain brand strength,
particularly the Enfa family of brands; (2) the effect on the company’s
reputation of real or perceived quality issues; (3) the effect of
regulatory restrictions related to the company’s products; (4) the
adverse effect of commodity costs; (5) increased competition from
branded, private label, store and economy-branded products; (6) the
effect of an economic downturn on consumers’ purchasing behavior and
customers’ ability to pay for product; (7) inventory reductions by
customers; (8) the adverse effect of changes in foreign currency
exchange rates; (9) the effect of changes in economic, political and
social conditions in the markets where we operate; (10) changing
consumer preferences; (11) the possibility of changes in the WIC(3)
program, or participation in WIC; (12) legislative, regulatory or
judicial action that may adversely affect the company’s ability to
advertise its products, maintain product margins, or negatively impact
the company’s reputation or result in fines or penalties that decrease
earnings; and (13) the ability to develop and market new, innovative
products. For additional information regarding these and other factors,
see the company’s filings with the United States Securities and Exchange
Commission (the “SEC”), including its most recent Annual Report on Form
10-K, which filings are available upon request from the SEC or at www.meadjohnson.com.
The company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. The
company undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise.

About Mead Johnson

Mead Johnson, a global leader in pediatric nutrition, develops,
manufactures, markets and distributes more than 70 products in over 50
markets worldwide. The company’s mission is to nourish the world’s
children for the best start in life. The Mead Johnson name has been
associated with science-based pediatric nutrition products for over 100
years. The company’s “Enfa” family of brands, including Enfamil®
infant formula, is the world’s leading brand franchise in pediatric
nutrition. For more information, go to www.meadjohnson.com.

(3) The Special Supplemental Nutrition Program for
Women, Infants and Children (WIC) is a federal assistance program of the
Food and Nutrition Services (FNS) of the United States Department of
Agriculture (USDA).

   
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
Three Months Ended

Years Ended

December 31, December 31,
2015   2014 2015   2014
NET SALES $ 967.0 $ 1,094.2 $ 4,071.3 $ 4,409.3
Cost of Products Sold 358.6   430.2   1,455.3   1,700.6  
GROSS PROFIT 608.4 664.0 2,616.0 2,708.7
Operating Expenses:
Selling, General and Administrative 211.1 263.5 890.6 978.9
Advertising and Promotion 151.1 149.5 641.8 638.7
Research and Development 28.5 32.6 108.4 115.1
Other (Income)/Expenses–net 21.9   8.8   39.0   (12.3 )
EARNINGS BEFORE INTEREST AND INCOME TAXES 195.8 209.6 936.2 988.3
 
Interest Expense—net 22.5   14.3   65.0   60.3  
EARNINGS BEFORE INCOME TAXES 173.3 195.3 871.2 928.0
 
Provision for Income Taxes 42.3   38.7   215.9   199.2  
NET EARNINGS 131.0 156.6 655.3 728.8
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests 3.0   (1.8 ) 1.8   9.0  
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 128.0   $ 158.4   $ 653.5   $ 719.8  
 
Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.67   $ 0.78   $ 3.28   $ 3.55  
Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.67   $ 0.78   $ 3.27   $ 3.54  
 
Weighted Average Shares–Diluted 189.8 202.9 199.4 202.7
Dividends Declared per Share $ 0.41 $ 0.38 $ 1.65 $ 1.50
 

(a) The numerator for basic and diluted earnings
per share is net earnings attributable to shareholders. Net earnings has
been reduced by dividends and undistributed earnings attributable to
unvested share based incentive plan awards. The denominator for basic
earnings per share is the weighted-average shares outstanding during the
period. The denominator for diluted earnings per share is the
weighted-average shares outstanding adjusted for the effect of dilutive
stock options and performance share awards.

When aggregated, EPS for the four quarters of 2015 are not equal to
the full year EPS figure due to the variability of quarterly earnings
and the timing of share repurchases.

   
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
 
December 31, 2015 December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,701.4 $ 1,297.7
Receivables—net of allowances of $5.4 and $9.6, respectively 342.5 387.8
Inventories 484.9 555.5
Income Taxes Receivable 13.2 7.7
Prepaid Expenses and Other Assets 60.4   82.6  
Total Current Assets 2,602.4 2,331.3
Property, Plant, and Equipment—net 964.0 912.7
Goodwill 126.0 162.7
Other Intangible Assets—net 54.9 75.4
Deferred Income Taxes—net of valuation allowance 118.5 150.4
Other Assets 132.3   131.3  
TOTAL $ 3,998.1   $ 3,763.8  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings $ 3.0 $ 4.1
Accounts Payable 481.5 512.3
Dividends Payable 77.8 76.6
Accrued Expenses 213.0 203.7
Accrued Rebates and Returns 376.8 329.1
Deferred Income—current 35.5 34.3
Income Taxes Payable 65.7   45.2  
Total Current Liabilities 1,253.3 1,205.3
Long-Term Debt 2,981.0 1,492.8
Deferred Income Taxes—noncurrent 8.7 12.0
Pension and Other Post-employment Liabilities 132.4 211.1
Other Liabilities – noncurrent 215.2   192.8  
Total Liabilities 4,590.6 3,114.0
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST 66.0
 
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 191.4 and 207.2
issued, respectively
1.9 2.1
Additional Paid-in/(Distributed) Capital (564.2 ) (641.3 )
Retained Earnings 640.4 1,775.0
Treasury Stock—at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (347.8 ) (198.9 )
Total Shareholders’ Equity/(Deficit) (632.3 ) 574.3
Noncontrolling Interests 39.8   9.5  
Total Equity/(Deficit) (592.5 ) 583.8  
TOTAL $ 3,998.1   $ 3,763.8  
 
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
 

Years Ended December 31,

2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 655.3 $ 728.8
Adjustments to Reconcile Net Earnings to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 99.1 91.6
Other 66.5 77.2
Changes in Assets and Liabilities 168.4 (54.0 )
Payments for Settlement of Interest Rate Forward Swaps (45.0 )
Pension and Other Post-employment Benefit Contributions (90.1 ) (5.2 )
Net Cash Provided by Operating Activities 899.2 793.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures (173.7 ) (186.6 )
Proceeds from Sale of Property, Plant and Equipment 0.5 0.2
Proceeds from/(Investment in) Other Companies   4.0  
Net Cash Used in Investing Activities (173.2 ) (182.4 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings 1,003.0 3.2
Repayments of Short-term Borrowings (1,002.9 ) (0.6 )
Proceeds from Issuance of Long-term Notes, net of original issue
discounts and expenses paid
1,499.0 492.0
Repayments of Notes Payable (500.0 )
Proceeds from Long-term Revolver Borrowings, net of original issue
discount and expenses paid
446.0
Repayment of Long-term Revolver Borrowings (446.0 )
Payments of Dividends (326.0 ) (296.6 )
Stock-based-compensation-related Proceeds and Excess Tax Benefits 25.4 46.2
Stock-based Compensation Tax Withholdings (11.4 ) (7.9 )
Payments for Repurchase of Common Stock (1,437.0 ) (54.1 )
Purchase of Redeemable Shares (24.2 )
Purchase of Trading Securities (16.2 )
Sale of Trading Securities 21.7
Distributions to Noncontrolling Interests (6.9 ) (7.7 )
Net Cash Used in Financing Activities (275.5 ) (325.5 )
Effects of Changes in Exchange Rates on Cash and Cash Equivalents (46.8 ) (38.6 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 403.7   246.9  
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,297.7   1,050.8  
End of Period $ 1,701.4   $ 1,297.7  

Contacts

Mead Johnson Nutrition Company
Investors:
Kathy MacDonald,
(847) 832-2182
kathy.macdonald@mjn.com
or
Media:
Christopher
Perille, (847) 832-2178
chris.perille@mjn.com

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