Mead Johnson maintains full-year forecast despite Chinese infant formula price cuts
Earlier this month, the Chinese National Development and Reform Commission (NDRC) launched an investigation into high infant formula pricing and suspected anti-monopoly law violations by a number of manufacturers including Mead Johnson Nutrition.
In response, the Illinois-based firm reduced the prices of its infant nutrition products, including its popular Enfamil brand, in China by between 7% and 15%.
According to the company, Chinese annual sales revenue will be negatively impacted by between $55m and $65m as a result.
“In 2013, we will see a half year impact, with a sales risk in the low $30m range before any offsets,” said Mead Johnson Nutrition CFO and executive vice president, Peter G Leemputte during the company’s earnings call for the second quarter of the year.
Despite this anticipated loss, Mead Johnson has upheld its full year forecast, which detailed earnings per share of between $3.22 and $3.30 and overall sales growth of around 8%.
Global portfolio growth
During the earnings call, Leemputte added that the company expects growth across its global portfolio to offset the impact of its decision to cut infant formula prices in China.
“First, we’re seeing higher growth relative to earlier expectation in the developed markets of the US and Canada from share gains, and the emerging markets outside of China and Hong Kong account for over 40% of total sales. Growth in these markets has also exceeded our prior estimates,” he said.
“Secondly, we believe that our lower prices in China may result in a somewhat reduced level of promotional activity. And finally, Hong Kong has stabilized at a level higher than we anticipated last quarter,” he added.
Positive volume growth in China, Hong Kong
Overall, the company reported sales of $1.055bn for the second quarter of 2013, a 4% increase on the $1.012bn recorded in Q2 last year. Mead Johnson has attributed this increase to an 8% increase in sales from its Asian and Latin American segments.
This result offset a 4% decline in sales from its North American and European segments.
Total sales for the first six months of the year ended 30 June 2013 totaled $2.093bn, a 5% increase on the $1.999bn reported last year.
“We are encouraged by our revenue growth in the quarter. It allowed us to increase demand-generation investments,” said Mead Johnson Nutrition CEO, Peter Kasper Jakobsen.
“Our China/Hong Kong business has returned to positive volume growth after three consecutive quarters of decline,” said Jakobsen, adding that despite the on-going probe in China the company remains confident of its “long-term prospects in this important market.”
