Mead Johnson Nutrition Company (NYSE: MJN) today announced its
financial results for the quarter and six months ended
June 30, 2016.
Highlights are as follows:
- Gross sales were 5% below the prior
year quarter on a reported basis and flat on a constant dollar(1)
basis. Net sales were 9% below the prior year quarter on a reported
basis and 4% below on a constant dollar basis. Adverse foreign
currency, new product testing standards for imported goods in
China, and an increase in trade investments in China all reduced
net sales in the current quarter.
- Selling, general and administrative
expenses in the second quarter decreased 10% compared to the prior
year quarter. Excluding Specified Items and the impact of foreign
exchange, non-GAAP(1) selling, general and administrative expenses
were down 9% compared to the prior year quarter as a result of the
company's Fuel for Growth program.
- Additional savings opportunities of $60
million have been identified within Fuel for Growth, resulting in
expected total cost savings of approximately $180 million by 2018.
The program is ahead of schedule and is now expected to deliver
approximately $75 to $80 million of savings in 2016.
- Earnings before Interest and Income
Taxes (EBIT) was 6% below the prior year quarter. Excluding
Specified Items and the impact of foreign exchange, non-GAAP EBIT
was 10% above the prior year quarter.
- Earnings per Share (EPS) for the second
quarter was $0.83. Excluding Specified Items, non-GAAP EPS was
$0.88. EPS for the six months ending June 30, 2016 was $1.21.
Excluding Specified Items, non-GAAP EPS was $1.75.
- The company has revised its net sales
outlook and now expects full year net sales of 5% to 7% below the
prior year on a reported basis and 0% to 2% below the prior year on
a constant dollar basis. The revision is driven by increased
customs processes at border points in China, lower-than-expected
U.S. market share in the first half of the year, as well as
increased trade investments in China.
- The company reaffirms 2016 GAAP EPS
guidance of $2.91 to $3.03 as improved gross margin and lower
operating costs are expected to offset the impact of lower sales.
GAAP EPS guidance is likely to be impacted by potentially
significant future mark-to-market pension adjustments which cannot
be estimated and are classified as a Specified Item. The company
reaffirms non-GAAP EPS guidance of $3.48 to $3.60. Specified Items
include charges related to Fuel for Growth and our Venezuela
business. This guidance includes an estimated adverse impact of
currency exchange rates, which is now expected to be approximately
$0.35 per share.
"As we move through this year, I am pleased that we continue to
deliver against our profit objectives despite a challenging
global operating environment," said Kasper Jakobsen, Chief
Executive Officer. "We are making good progress with our portfolio
and channel transformation in China despite near-term challenges.
We are aligning the organization behind more ambitious operating
cost reductions in support of both our growth and value creation
strategies."
(1) 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 and in the schedules titled
“Reconciliation of non-GAAP to GAAP Results.” Non-GAAP 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.”
Second Quarter 2016 (Dollars in Millions)
(UNAUDITED) Three Months Ended June
30, % Change % Change Due
to
Net Sales
2016
% of Total
2015
% of Total
Reported
Constant Dollar
Volume Price/Mix
ForeignExchange
Asia $456.2 48% $513.2 50% (11)% (7)% (5)% (2)% (4)% Latin America
166.5 18% 198.4 19% (16)% (3)% (12)% 9% (13)% North America/Europe
318.8 34% 320.8 31% (1)% —% (1)% 1% (1)% Net Sales $941.5 100%
$1,032.4 100% (9)% (4)% (5)% 1% (5)%
- In Asia, sales were 11% below the prior
year quarter on a reported basis. Sales were negatively impacted by
adverse foreign currency translation, mainly in China. On a
constant dollar basis, sales were 7% below the prior year quarter,
primarily driven by an increase in trade investments in China, a
portion of which were reallocated from advertising and promotion
spending. Additional impacts to sales included new product testing
for imported goods in China towards the end of the second quarter
and market share losses on our mid-priced children's products in
the Philippines.
- In Latin America, sales were 16% below
the prior year quarter on a reported basis. On a constant dollar
basis, net sales were 3% below the prior year quarter. The segment
was negatively impacted by adverse currency translation, mainly in
Mexico and Argentina. Momentum in Mexico and Colombia did not fully
offset macroeconomic challenges in Brazil, Venezuela and Argentina.
Excluding the impact of suspended shipments into Venezuela,
constant dollar sales increased by 4%. Price increases taken in
2016 in key markets across the segment offset a substantial portion
of the adverse foreign exchange impact across the segment.
- In North America/Europe, sales were 1%
below the prior year quarter on a reported basis and were flat on a
constant dollar basis. In the U.S., the company experienced
lower-than-expected market share, which was partially offset by
market share gains in both infant and children's products in
Canada.
Three Months
Ended June 30, % Change
% Change Due to
Earnings Before Interest and Income Taxes (EBIT) 2016
% of Sales
2015 % of Sales Reported
Constant Dollar
Foreign Exchange
Asia $137.0 30% $156.4 30% (12)% (4)% (8)% Latin America 36.2 22%
44.8 23% (19)% (7)% (12)% North America/Europe 99.2 31% 85.3 27%
16% 21% (5)% Corporate and Other (a) (58.0) (57.3) (1)%
GAAP EBIT 214.4 23% 229.2 22% (6)% —% (6)% Non-GAAP EBIT $230.2
$222.0 4% 10% (6)%
(a) All Specified Items are included in
Corporate and Other.
- EBIT was 6% below the prior year
quarter on a reported basis. Excluding pension remeasurement
charges of $13 million in 2016 compared to gains of approximately
$2 million in 2015, non-GAAP EBIT on a constant dollar basis was
10% above the prior year quarter. A 90 basis point reduction in
gross margin was driven by the pension remeasurement charge and
adverse foreign exchange. Excluding these impacts, non-GAAP gross
margin increased 120 basis points due to lower dairy input costs.
Fuel for Growth resulted in approximately $29 million in lower
operating expenses in 2016 compared to the prior year quarter.
- In Asia, EBIT decreased 12% on a
reported basis and 4% on a constant dollar basis when compared to
the prior year quarter. The decrease in EBIT was primarily due to
adverse foreign exchange. Lower sales were partially offset by
lower dairy input costs and lower operating expenses.
- In Latin America, EBIT decreased 19% on
a reported basis and 7% on a constant dollar basis when compared to
the prior year quarter. Foreign currency had an adverse impact on
EBIT, primarily due to the Mexican Peso. Lower operating expenses,
driven by lower advertising and promotion expenses and cost
savings, partially offset the decline in sales.
- In North America/Europe, EBIT increased
16% on a reported basis and 21% on a constant dollar basis when
compared to the prior year quarter. Gross margin improvements and
reduced operating expenses drove the increase in EBIT despite a
reduction in sales.
- Corporate and Other expenses were 1%
lower compared to the prior year quarter, which includes Specified
Items, most notably the pension remeasurement charge. Excluding the
impact of Specified Items, Corporate and Other expenses were 35%
lower than the prior year quarter due to savings from Fuel for
Growth.
Six Months 2016 (Dollars in Millions)
(UNAUDITED) Six Months Ended June
30, % Change % Change Due
to Net Sales 2016
% of Total
2015
% of Total
Reported
Constant Dollar
Volume Price/Mix
ForeignExchange
Asia $ 956.8 50% $ 1,094.2 51% (13)% (9)% (8)% (1)% (4)% Latin
America 326.8 17% 402.8 19% (19)% (4)% (12)% 8% (15)% North
America/Europe 620.0 33% 629.8 30% (2)% (1)% (1)% —%
(1)% Net Sales $ 1,903.6 100% $ 2,126.8 100% (10)%
(5)% (6)% 1% (5)%
- In Asia, sales were 13% below the prior
year period on a reported basis. Sales were negatively impacted by
adverse foreign currency translation, mainly in China. Sales were
9% below the prior year quarter on a constant dollar basis due to a
shift in consumer preferences towards imported products, increased
customs processes at border points in China, and market share
losses in mid-priced children's products in the Philippines.
- In Latin America, sales were 19% below
the prior year period on a reported basis. On a constant dollar
basis, net sales were 4% below the prior year. The segment was
negatively impacted by adverse currency translation, mainly in
Mexico and Argentina. Excluding the impact of suspended shipments
into Venezuela, constant dollar sales increased 6%. Price increases
taken in 2016 in key markets across the segment offset a
substantial portion of the adverse foreign exchange impact across
the segment.
- In North America/Europe, sales
decreased slightly on a reported and constant dollar basis compared
to the prior year period. In the U.S., the company experienced
increased competitive activities, which were partially offset by
strong growth and market share gains in Canada driven by both
infant and children's products.
% Change Six
Months Ended June 30, % Change Due to Earnings
Before Interest and Income Taxes (EBIT) 2016
% of Sales
2015
% of Sales
Reported
Constant Dollar
ForeignExchange
Asia $306.1 32% $387.9 35% (21)% (15)% (6)% Latin America 77.0 24%
102.1 25% (25)% (9)% (16)% North America/Europe 181.2 29% 163.6 26%
11% 15% (4)% Corporate and Other (a) (199.8) (139.2) (44)%
EBIT 364.5 19% 514.4 24% (29)% (21)% (8)% Non-GAAP EBIT $474.5
$522.2 (9)% (1)% (8)%
(a) All Specified Items are included in
Corporate and Other.
- EBIT declined 29% in the first half of
2016 compared to the prior year period. EBIT in 2016 includes $78
million of charges related to the Venezuela business and $19
million of pension remeasurement losses as well as adverse foreign
exchange. Excluding the impact of Specified Items and the impact of
foreign exchange, non-GAAP EBIT declined 1%. Reduced gross profit
from lower sales was partially offset by lower operating expenses.
Fuel for Growth resulted in a $47 million reduction in operating
expenses.
- In Asia, EBIT decreased 21% on a
reported basis and 15% on a constant dollar basis when compared to
the prior year period. Adverse foreign exchange impacts were driven
mainly by China. EBIT was further impacted by lower sales and
increased brand investments to support newly launched products in
China.
- In Latin America, EBIT decreased 25% on
a reported basis and 9% on a constant dollar basis when compared to
the prior year period, with the Venezuela business driving a 19%
reduction in the segment. Lower sales were partially offset by
strong performance in Mexico, cost savings initiatives and lower
advertising and promotion, all of which benefited EBIT in the
period.
- In North America/Europe, EBIT increased
11% on a reported basis compared to the prior year period. Despite
lower sales, EBIT increased due to lower dairy costs. Reduced
advertising and promotion expenses and savings from Fuel for Growth
also contributed to the improvement in EBIT.
- Corporate and Other expenses were 44%
higher on a reported basis compared to the prior year period
primarily due to the long-lived asset impairment and devaluation
charges related to the Venezuela business during the first quarter
of 2016, as well as Fuel for Growth and pension mark-to-market
charges. Excluding the impact of these Specified Items, Corporate
and Other expenses improved 32% due to savings from Fuel for
Growth.
Cash Flow Items and Liquidity
- Cash and cash equivalents were $1,716.0
million at June 30, 2016 compared to $1,701.4 million at
December 31, 2015. The company's net debt was $1,309.7 million at
June 30, 2016, consisting of debt of $3,025.7 million less
cash and cash equivalents. Cash was negatively impacted in the six
months ended June 30, 2016 by $32 million of foreign currency
devaluation, primarily in Venezuela.
- Cash generated from operating
activities was $276.1 million for the six months ended
June 30, 2016 compared to $456.5 million in the prior year
period. Cash flows from operating activities were negatively
impacted in the current year by $94 million of other working
capital increases, higher trade investments and interest
payments.
- Cash used in investing activities
included capital expenditures of $80.8 million for the first six
months of 2016. This included investments in capacity expansion for
manufacturing facilities in the U.S. and Europe.
- Cash used in financing activities was
$148.9 million for the six months ended June 30, 2016 compared
to $181.6 million in the prior year period. Activities in the
current year and the prior year were primarily related to dividend
payments which were lower in the current year due to the retirement
of shares repurchased under the Accelerated Repurchase Agreement
("ASR"). The prior year period included cash paid to acquire an
incremental 10% of the company's business in Argentina.
- Interest expense, net, for the six
months ended June 30, 2016 was $52.6 million, an increase from
$27.7 million in the prior year period due to the incremental
interest on the long-term debt issued in November 2015, partially
offset by the impact of related interest rate swaps.
- On June 30, 2016, the company received
2.1 million shares to settle the ASR, bringing the total delivery
of shares under this program to 12.8 million. The ASR was entered
into in October 2015 and reflected a total purchase of $1 billion
of shares of the company's stock. The average price paid per share
under the ASR was $78.05.
Outlook for 2016
The company has revised its net sales outlook and now expects
full year net sales of 5% to 7% below the prior year on a reported
basis and 0% to 2% below the prior year on a constant dollar basis.
The revision is driven by increased customs processes at border
points in China, lower-than-expected U.S. market share in the first
half of the year, as well as increased trade investments in
China.
The company reaffirms 2016 GAAP EPS guidance of $2.91 to $3.03
as improved gross margin and lower operating costs are expected to
offset the impact of lower sales. GAAP EPS guidance is likely to be
impacted by potentially significant future mark-to-market pension
adjustments which cannot be estimated and are classified as a
Specified Item. The company reaffirms non-GAAP EPS guidance of
$3.48 to $3.60. Specified Items include charges related to Fuel for
Growth and our Venezuela business. This guidance includes an
estimated adverse impact of current exchange rates, which is now
expected to be approximately $0.35 per share.
"We remain squarely focused on restoring topline growth as we
move into the second half of the year," said Mr. Jakobsen.
"Expected progress against the newly announced, more ambitious cost
reduction target will help fund the investments we need to make and
protect our value creation. Despite a challenging external
environment, I am excited about the opportunities in front of us,
and I remain confident in our ability to deliver against the
strategy we communicated to investors late last year."
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 second quarter and first half of 2016.
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 11:00 p.m. U.S.
Central Time Sunday, September 11, 2016, by calling 855-859-2056,
or outside of North America by calling +1-404-537-3406, passcode:
43193043. 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 program, or
participation in WIC(2); (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.
(2) 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 June 30, Six Months
Ended June 30, 2016 2015 2016
2015 NET SALES $ 941.5 $ 1,032.4 $ 1,903.6 $ 2,126.8
Cost of Products Sold 333.2 356.4 680.8 749.9
GROSS PROFIT 608.3 676.0 1,222.8 1,376.9 Operating Expenses:
Selling, General and Administrative 206.7 230.2 405.6 463.4
Advertising and Promotion 166.0 190.2 317.8 334.6 Research and
Development 26.4 27.7 51.8 53.6 Other (Income)/Expenses—net (5.2 )
(1.3 ) 83.1 10.9 EARNINGS BEFORE INTEREST AND INCOME
TAXES 214.4 229.2 364.5 514.4 Interest Expense—net 26.4
13.9 52.6 27.7 EARNINGS BEFORE INCOME
TAXES 188.0 215.3 311.9 486.7 Provision for Income Taxes
32.2 52.7 79.4 117.0 NET EARNINGS 155.8
162.6 232.5 369.7 Less Net Earnings/(Loss) Attributable to
Noncontrolling Interests 0.7 (0.3 ) 4.7 (0.6 ) NET
EARNINGS ATTRIBUTABLE TO SHAREHOLDERS $ 155.1 $ 162.9
$ 227.8 $ 370.3 Earnings per Share(a)– Basic
Net Earnings Attributable to Shareholders $ 0.83 $ 0.80
$ 1.22 $ 1.83 Earnings per Share(a)– Diluted
Net Earnings Attributable to Shareholders $ 0.83 $ 0.80
$ 1.21 $ 1.82 Weighted Average
Shares—Diluted 187.0 203.1 186.9 203.1 Dividends Declared per Share
$ 0.4125 $ 0.4125 $ 0.8250 $ 0.8250
(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.
MEAD JOHNSON NUTRITION COMPANY CONDENSED
CONSOLIDATED BALANCE SHEETS (Dollars and shares in millions,
except per share data) (UNAUDITED)
June 30, 2016 December 31, 2015
ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 1,716.0 $
1,701.4 Receivables—net of allowances of $5.3 and $5.4,
respectively 359.5 342.5 Inventories 465.8 484.9 Income Taxes
Receivable 13.0 13.2 Prepaid Expenses and Other Assets 65.6
60.4 Total Current Assets 2,619.9 2,602.4 Property, Plant
and Equipment—net 925.4 964.0 Goodwill 115.8 126.0 Other Intangible
Assets—net 48.9 54.9 Deferred Income Taxes—net of valuation
allowance 142.3 118.5 Other Assets 176.3 132.3 TOTAL
$ 4,028.6 $ 3,998.1
LIABILITIES AND EQUITY
CURRENT LIABILITIES: Short-term Borrowings $ 3.8 $ 3.0 Accounts
Payable 456.3 481.5 Dividends Payable 77.6 77.8 Accrued Expenses
193.6 213.0 Accrued Rebates and Returns 396.7 376.8 Deferred Income
10.3 35.5 Income Taxes Payable 22.2 65.7 Total
Current Liabilities 1,160.5 1,253.3 Long-Term Debt 3,021.9 2,981.0
Deferred Income Taxes 6.1 8.7 Pension and Other Post-employment
Liabilities 149.4 132.4 Other Liabilities 210.1 215.2
Total Liabilities 4,548.0 4,590.6 COMMITMENTS AND CONTINGENCIES
EQUITY Shareholders’ Equity Common Stock, $0.01 par value:
3,000 authorized, 189.6 and 191.4 issued, respectively 1.9 1.9
Additional Paid-in/(Distributed) Capital (537.1 ) (564.2 ) Retained
Earnings 709.8 640.4 Treasury Stock—at cost (362.6 ) (362.6 )
Accumulated Other Comprehensive Loss (374.1 ) (347.8 ) Total
Shareholders’ Equity/(Deficit) (562.1 ) (632.3 ) Noncontrolling
Interests 42.7 39.8 Total Equity/(Deficit) (519.4 )
(592.5 ) TOTAL $ 4,028.6 $ 3,998.1
MEAD
JOHNSON NUTRITION COMPANY CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (Dollars in millions) (UNAUDITED)
Six Months Ended June 30, 2016
2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net
Earnings $ 232.5 $ 369.7 Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities: Depreciation and
Amortization 49.3 48.8 Impairment of Long-Lived Assets 45.9 — Other
38.4 26.3 Changes in Assets and Liabilities (88.1 ) 14.2 Pension
and Other Post-employment Benefit Contributions (1.9 ) (2.5 ) Net
Cash Provided by Operating Activities 276.1 456.5 CASH FLOWS FROM
INVESTING ACTIVITIES: Payments for Capital Expenditures (80.8 )
(80.0 ) Proceeds from Sale of Property, Plant and Equipment 0.2
0.4 Net Cash Used in Investing Activities (80.6 )
(79.6 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from
Short-term Borrowings 1.3 1.0 Repayments of Short-term Borrowings
(0.2 ) (4.0 ) Debt Issuance Costs (0.1 ) — Payments of Dividends
(154.8 ) (159.8 ) Stock-based Compensation related Proceeds and
Excess Tax Benefits 9.6 19.7 Stock-based Compensation Tax
Withholdings (3.8 ) (10.3 ) Purchase of Redeemable Shares — (5.1 )
Purchase of Trading Securities — (16.2 ) Distributions to
Noncontrolling Interests (0.9 ) (6.9 ) Net Cash Used in Financing
Activities (148.9 ) (181.6 ) Effects of Changes in Exchange Rates
on Cash and Cash Equivalents (32.0 ) (17.9 ) NET INCREASE IN CASH
AND CASH EQUIVALENTS 14.6 177.4 CASH AND CASH EQUIVALENTS:
Beginning of Period 1,701.4 1,297.7 End of Period $
1,716.0 $ 1,475.1
Mead Johnson Nutrition Company Financial Information
(UNAUDITED) Reconciliation of Non-GAAP to GAAP
Results
This news release contains non-GAAP financial measures, each of
which is listed in the tables below. The items included in GAAP
measures, but excluded for the purpose of determining the non-GAAP
financial measures, include significant income/expenses not
indicative of underlying operating results, including the related
tax effect and, at times, the impact of foreign exchange. The
non-GAAP measures represent an indication of the company’s
underlying operating results and are intended to enhance an
investor’s overall understanding of the company’s financial
performance and ability to compare the company’s performance to
that of its peer companies. In addition, this information is among
the primary indicators the company uses as a basis for evaluating
company performance, setting incentive compensation targets and
planning and forecasting of future periods. This information is not
intended to be considered in isolation or as a substitute for
financial measures prepared in accordance with GAAP. Tables that
reconcile non-GAAP to GAAP disclosure follow below.
Constant Dollar
Certain measures in this release are presented excluding the
impact of foreign currency exchange (constant dollar). To present
this information, current period results for entities reporting in
currencies other than United States dollars are translated into
United States dollars at the average exchange rates in effect
during the corresponding period of the prior fiscal year, rather
than the actual average exchange rates in effect during the current
fiscal year. The company believes that these constant dollar
measures provide useful information to investors because they
provide transparency to underlying performance by excluding the
effect that foreign currency exchange rate fluctuations have on
period-to-period comparability given volatility in foreign currency
exchange markets. The primary currencies which impact the company
are: the Chinese renminbi, the Hong Kong dollar, the Mexican peso
and the Philippine peso.
Specified Items
Non-GAAP measures presented within this release exclude
Specified Items. The company considers Specified Items to be
significant income/expense items as not indicative of underlying
operating results, including the related tax effect.
Mead Johnson Nutrition Company Financial Information
(UNAUDITED) Reconciliation of Non-GAAP to GAAP
Results
Constant dollar
consolidated gross sales
Three Months Ended June 30,
% Change Foreign
Constant Gross Sales 2016 2015
Reported Exchange Dollar Total gross sales $
1,304.3 $ 1,366.2 (5)% (5)% —%
Constant dollar net
sales
Three Months Ended
June 30, % Change Foreign
Constant Impact of Excluding
Net Sales 2016 2015 Reported
Exchange Dollar Venezuela Venezuela
Asia $ 456.2 $ 513.2 (11)% (4)% (7)% Latin America 166.5 198.4
(16)% (13)% (3)% (7)% 4% North America/Europe 318.8 320.8
(1)% (1)% —% Net Sales $ 941.5 $ 1,032.4 (9)%
(5)% (4)% (1)% (3)%
Six Months Ended
June 30, % Change
Foreign Constant Impact of
Excluding Net Sales 2016 2015
Reported Exchange Dollar Venezuela
Venezuela Asia $ 956.8 $ 1,094.2 (13)% (4)% (9)% Latin
America 326.8 402.8 (19)% (15)% (4)% (10)% 6% North America/Europe
620.0 629.8 (2)% (1)% (1)% Net Sales $ 1,903.6
$ 2,126.8 (10)% (5)% (5)% (1)% (4)%
Non-GAAP constant
dollar gross margin
Three Months Ended June 30,
Six Months Ended June 30, 2016
2015 2016 2015
Gross Gross Gross
Gross Gross Gross Gross
Gross Profit Margin Profit
Margin Change Profit Margin
Profit Margin Change GAAP Gross Profit and
Gross Margin $ 608.3 64.6 % $ 676.0 65.5 % (90 bps) $ 1,222.8 64.2
% $ 1,376.9 64.7 % (50 bps) Pension Remeasurement (a) 4.5 0.5 %
(0.5 ) (0.1 )% 6.6 0.3 % (0.5 ) — % Foreign currency impact 45.2
1.5 % 89.7 0.9 % Non-GAAP Constant Dollar Gross
Profit and Gross Margin $ 658.0 66.6 % $ 675.5 65.4 % 120 bps $
1,319.1 65.5 % $ 1,376.4 64.7 % 80 bps
Non-GAAP constant
dollar selling, general and administrative expenses
Three Months Ended June 30,
Six Months Ended June 30, 2016
2015 Change 2016 2015
Change GAAP SG&A $ 206.7 $ 230.2 (10 )% $ 405.6 $
463.4 (12 )% Pension Remeasurement (a) (7.3 ) 0.8 (10.7 ) 0.8 All
Other (e) — (0.5 ) — (1.3 ) Foreign currency impact 9.5
22.3 Non-GAAP Constant Dollar SG&A $ 208.9
$ 230.5 (9 )% $ 417.2 $ 462.9 (10 )%
Constant dollar
segment EBIT
Three Months Ended June 30,
% Change Foreign
Constant Earnings Before Interest and Income Taxes
(EBIT) 2016 2015 Reported Exchange
Dollar Asia $ 137.0 $ 156.4 (12)% (8)% (4)% Latin America
36.2 44.8 (19)% (12)% (7)% North America/Europe 99.2 85.3 16% (5)%
21%
Six Months Ended June
30, % Change Foreign
Constant Earnings Before Interest and Income Taxes
(EBIT) 2016 2015 Reported Exchange
Dollar Asia $ 306.1 $ 387.9 (21)% (6)% (15 )% Latin America
77.0 102.1 (25)% (16)% (9 )% North America/Europe 181.2 163.6 11%
(4)% 15 %
Non-GAAP Corporate
and other EBIT
Three Months Ended June 30,
Corporate and Other 2016 2015
% Change EBIT $ (58.0 ) $ (57.3 ) (1)% Pension Remeasurement
(a) 13.1 (1.5 ) Fuel for Growth (b) 2.0 Venezuela (d) 0.2 All Other
(e) 0.5 (5.7 ) Non-GAAP EBIT $ (42.2 ) $ (64.5 )
35%
Six Months Ended June 30,
Corporate and Other 2016 2015
% Change EBIT $ (199.8 ) $ (139.2 ) (44)% Pension
Remeasurement (a) 19.2 (1.5 ) Investigation Accrual (c) 12.0 Fuel
for Growth (b) 11.1 Venezuela (d) 78.4 All Other (e) 1.3
(2.7 ) Non-GAAP EBIT $ (89.8 ) $ (131.4 )
32%
Non-GAAP EBIT and
constant dollar EBIT
Three Months Ended June 30,
Six Months Ended June 30, 2016
2015 Change 2016 2015
Change EBIT $ 214.4 $ 229.2 (6 )% $ 364.5 $ 514.4 (29
)% Pension Remeasurement (a) 13.1 (1.5 ) 19.2 (1.5 ) Investigation
Accrual (c) — — — 12.0 Fuel for Growth (b) 2.0 — 11.1 — Venezuela
(d) 0.2 — 78.4 — All Other (e) 0.5 (5.7 ) 1.3 (2.7 )
Non-GAAP EBIT 230.2 222.0 4 % 474.5 522.2 (9 )% Foreign currency
impact 14.9 40.9 Non-GAAP Constant
Dollar EBIT $ 245.1 $ 222.0 10 % $ 515.4 $ 522.2 (1 )%
Non-GAAP diluted
EPS
Three Months Ended June 30,
Six Months Ended June 30, 2016
2015 Change 2016 2015
Change GAAP EPS-Diluted $ 0.83 $ 0.80 4 % $ 1.21 $
1.82 (34 )% Pension Remeasurement (a) 0.04 0.06 (0.01 )
Investigation Accrual (c) 0.04 Fuel for Growth (b) 0.01 0.05
Venezuela (d) 0.42 All Other (e) (0.04 ) 0.01 —
Non-GAAP EPS $ 0.88 $ 0.76 16 % $ 1.75
$ 1.85 (5 )%
Consolidated Net
Debt
June 30, 2016 December
31, 2015 Short-term borrowings $ 3.8 $ 3.0 Long-Term Debt
3,021.9 2,981.0 Total Debt 3,025.7 2,984.0 Less: Cash and
cash equivalents $ 1,716.0 $ 1,701.4 Net debt $ 1,309.7 $
1,282.6
(a) Pension Remeasurement: When incurred, gains and losses
related to the remeasurement of defined benefit pension and
post-employment benefit plans are classified as Specified Items and
excluded from non-GAAP performance measures. Pension remeasurement
reflects changes in the pension assets and liabilities above what
was estimated and included in periodic costs. Factors beyond our
control such as changes in discount rates, market volatility and
mortality assumptions drive the remeasurement amount. The majority
of our pension and post-employment plans are frozen, and therefore
the benefit provided to such employees is not related to our
underlying operations.
(b) Fuel for Growth: The Company approved a plan to implement a
business productivity program referred to as “Fuel for Growth,”
during the third quarter of 2015, which is anticipated to be
implemented over a three-year period. Fuel for Growth is designed
to improve operating efficiencies and reduce costs. Fuel for Growth
is expected to improve profitability and create additional
investments behind brand building and growth initiatives. Fuel for
Growth focuses on the optimization of resources within various
operating functions and certain third party costs across the
business.
(c) Investigation Accrual: An accrual made in connection with
the SEC settlement disclosed by the Company in July 2015.
(d) Venezuela: Foreign exchange losses and long-lived asset
impairment charges in Venezuela.
(e) All Other: Primarily includes restructuring costs in 2016
and a marketable securities gain in 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160728005713/en/
Contacts at Mead Johnson Nutrition:Investors:Kathy
MacDonald,
847-832-2182kathy.macdonald@mjn.comorMedia:Christopher
Perille, 847-832-2178chris.perille@mjn.com
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