Illinois-based manufacturer of pediatric nutritional products Mead Johnson Nutrition Company (MJN) is scheduled to report its third-quarter 2014 earnings results before the opening bell on Oct 23.
Last quarter, the company had delivered a 1.12% negative surprise. Let's see how things are shaping up prior to this announcement.
Factors at Play
Currently Mead Johnson aims at capturing larger overseas market share in the lesser developed regions of Asia, Latin America, the Indian subcontinent and Eastern Europe. We believe the implemented strategies and the continuous investment that the company is carrying out in these regions will help capitalize on the immense potential that lies in these untapped portions of the international market. For the full year 2014, the company now expects positive growth in North America, Europe and Latin America.
Innovation remains as a vital growth driver for Mead Johnson. Based on this, the company sticks to its commitment of investing aggressively in research and development for innovation of products in the near as well as the long term. Moreover, the company also continues to prioritize investment in meaningful demand generating activities to produce sustainable revenue growth in the coming quarters.
However, the company continues to face challenging growth-hindering headwinds like a deteriorating gross margin scenario on account of increasing dairy costs and other expenses, exposure to fluctuating foreign currency and certain adverse regulatory actions which are expected to affect the company's product sales.
For the full year 2014, Mead Johnson expects year-over-year sales growth of 9% and adjusted earnings per share in the range of $3.65–$3.72. The current Zacks Consensus Estimate of $3.71 lies near the upper limit of the company's guided range. The same for revenues is pegged at $4.4 billion.
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 -2.20%.That is because the Most Accurate estimate lies at 89 cents, while the Zacks Consensus Estimate is pegged higher at 91 cents.
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.
We caution particularly 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 as our model shows they have the right combination of elements to post an earnings beat this quarter:
Abaxis, Inc. (ABAX), earnings ESP of +4.55% and a Zacks Rank #2 (Buy). The company will report its second quarter fiscal 2015 earnings on Oct 21.
Hospira Inc. (HSP), earnings ESP of +7.55% and a Zacks Rank #3. The company will report its third quarter 2014 earnings on Nov 6.
Heartware International Inc. (HTWR), earnings ESP of +21.21% and Zacks Rank #3. The company will report its third quarter 2014 earnings on Oct 30.
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