Is 2016 a Year of Transition for Mead Johnson?
Mead Johnson: Upgrades, Target Prices, and Upcoming 1Q16
2016: A year of transition
Mead Johnson (MJN) believes 2016 will be a year of transition for the company. It plans to invest heavily in reshaping its portfolio and boosting investments in new channels in China. The company also continues to evolve its brand portfolio and drive channel strategy. It’s also reducing organizational layers and eliminating unnecessary cost structures.
2016 expectations
Mead Johnson expects 2016 constant dollar sales growth to be modest, from 0%–2%. Currency translation is expected to have an adverse impact of 200 basis points on sales growth based on the current rate. Sales for 2016 are expected to decline 6%–8%. The company also expects dairy prices to have a favorable impact on cost of goods. For 2016, the company plans to reduce operating expenses by $60 million and further reinvest in select growth initiatives and protect earnings growth.
Due to the challenge of the strengthening dollar, MJN expects modest, single-digit EPS growth. The company also expects sales growth to improve in the second half of the year, reflecting the phasing of growth initiatives and investments. They also expect to incur charges of $25 million–$30 million associated with the Fuel for Growth program in 2016.
Among Mead Johnson’s peers in the food and packaging industry, Mondelez (MDLZ) has fallen 4% so far in 2016. Hershey (HSY) and Kraft Heinz (KHC) have risen 0.5% and 5.4%, respectively, in 2016. The Vanguard Consumer Staples ETF (VDC) invests 3.8% of its portfolio in Mondelez and 2.3% in Kraft Heinz.
New premium price product line in China
On March 28, 2016, Mead Johnson announced the launch of its new Enfinitas premium-priced product line in China. The company expects this product to strengthen its competitiveness in the fastest-growing segment in China. This is part of the company’s initiative to broaden its product portfolio. Enfinitas is specifically customized for the Chinese market. It contains lactoferrin from the milk fat globule membrane, which is recognized to provide structural and functional benefits to infants. The company should tell us more about this in its upcoming 1Q16 earnings call.
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