On Oct 17, 2014, we initiated our coverage on Mead Johnson Nutrition Company (MJN), a global leader in pediatric nutrition, especially for infants and children.
Mead Johnson’s second-quarter 2014 adjusted earnings per share of 88 cents exceeded the year-ago figure by 1.1%. However, the bottom line missed the Zacks Consensus Estimate by 2 cents. Revenues went up 10% at CER to $1.11 billion, slightly ahead of the Zacks Consensus Estimate of $1.104 billion.
At present Mead Johnson markets its products internationally in more than 50 countries and derives majority of its revenues from these regions. In order to capture the untapped potential of lesser developed regions like Asia, Latin America, the Indian subcontinent and Eastern Europe, the company is working on increasing its sales and operations in these places.
In the last reported quarter, sales in Asia (52% of total sales) were up 11% at constant exchange rate (CER) driven by volume growth in the region, including easier comparison vis-à-vis the prior-year negative impact of the Hong Kong export restrictions. Price increased throughout the region due to innovation and higher dairy input costs.
However, growth in the Latin America segment was almost negligible as higher prices in Venezuela and Argentina could not sufficiently drive sales growth, offset by a significant devaluation in both the countries’ currencies.
In North America, Mead Johnson achieved considerable market share in the reported quarter, despite sales therein being negatively affected by increased input costs and high investments, mostly in the U.S. This growth was primarily attributable to addition of new WIC (Women, Infants, and Children) contracts and maintaining of existing WIC relationships.
In addition, investment in research and development (R&D) capabilities remains an integral part of Mead Johnson’s business. The company’s latest manufacturing and technology center in Singapore is expected to start production in the third quarter of 2014.
However, higher dairy input costs have been adversely affecting the company's margins as well as earnings. Moreover, headwinds such as unfavorable currency movement and legal issues continue to pose threats.
Mead Johnson currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Investors interested in the medical product sector can consider better-ranked stocks like Abaxis, Inc. (ABAX), ICU Medical, Inc. (ICUI) and Alere Inc. (ALR). All three stocks carry a Zacks Rank #2 (Buy).
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