Illinois-based manufacturer of pediatric nutritional products Mead Johnson Nutrition Company MJN is scheduled to report its first-quarter 2015 earnings before the opening bell on Apr 23.
Last quarter, the company had delivered a positive earnings surprise of 4.6%. Notably, Mead Johnson’s earnings have outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 3.88%. Let’s see how things are shaping up prior to this announcement.
Factors at Play
As the company enters 2015, management expects to face significant headwinds from a strengthening dollar and thus anticipates earnings to remain partially exposed to currency fluctuations. Also, currency related inflationary pressure in several countries will combine to create a more difficult pricing environment even as the company introduces new products. However, on a brighter note, the company expects its profit margins to benefit from lower commodity costs (that the company expects to incur) and a weakening euro. This should be duly reflected in the to-be-reported quarter’s results.
Management also expects to witness a stronger economic climate in the U.S., which will allow Mead Johnson to continue to recover through pricing and the investments made toward innovation and product improvement over the past five years.
Despite witnessing a decline in the last reported quarter’s gross margin, Mead Johnson hopes to see some continued quarterly improvement in gross margin on a sequential basis, going into 2015.
On the flip side, the company continues to face challenging headwinds like a prevailing weak gross margin scenario, exposure to fluctuating foreign currency and certain adverse legal actions that can potentially impact the company’s product sales.
For full year 2015, Mead Johnson continues to expect year-over-year sales growth of 7% and adjusted earnings per share in the band of $3.90–$4.00. The current Zacks Consensus Estimate of $3.98 lies within the company’s guided range. The same for revenues is pegged at $4.55 billion.
Looking forward, Mead Johnson continues to pursue investments in the higher growth channels in China, particularly the eCommerce and super-high premium segments that focus mostly on imported products.
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, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Mead Johnson has an earnings ESP of -1.91%.That is because the Most Accurate estimate is $1.03, while the Zacks Consensus Estimate is pegged higher at $1.05.
Zacks Rank: Mead Johnson has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
Meanwhile, we caution against stocks with Zacks Rank #4 and 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 instead as our model shows they have the right combination of elements to post an earnings beat this quarter:
Biogen Inc. BIIB, earnings ESP of +0.51% and a Zacks Rank #1.
Mirati Therapeutics, Inc. MRTX, earnings ESP of +10.81% and a Zacks Rank #2.
MEI Pharma, Inc. MEIP, earnings ESP of +3.45% and a Zacks Rank
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment