Mead Johnson (MJN) Strong On Overseas Growth & Strategies
Zacks Investment Research | Oct 02, 2016 09:50PM ET
On Oct 3, 2016, we issued an updated research report on Glenview, IL-based Mead Johnson Nutrition Company (NYSE:MJN) – a global leader in pediatric nutrition, especially for infants and children. The company currently carries a Zacks Rank #3 (Hold).
At present, Mead Johnson markets its products internationally in more than 50 countries and aims to expand its realm even further in the overseas market. This is evident from the substantial progress that the company has made internationally despite the macroeconomic turmoil witnessed in different regions.
In order to capture the untapped potential of less developed regions like Asia, Latin America, the Indian subcontinent and Eastern Europe, the company is working on increasing its sales and operations in these regions. During the last reported second-quarter 2016, it gained strong momentum, particularly in the markets of Mexico, Canada and Malaysia. In fact, in Latin America, where Mead Johnson recorded single-digit growth at CER (excluding Venezuela), Mexico and Colombia were the biggest contributors.
Further, the company has lately adopted a handful of strategic initiatives to effectively improve its operations. Under its WIC (Women, Infants, and Children) program, Mead Johnson recently achieved market leadership in the U.S. infant formula for the first time in several years. Observing the huge potential that the large infant nutrition market holds in the U.S., one of the latest strategies that the company adopted is bidding for new WIC contracts and maintaining the current WIC relationships.
In the second quarter of 2015, Mead Johnson launched Project Fuel for Growth, which is expected to reshape its income statement by increasing operating expense productivity. Evidently, by the end of the first half of 2016, this initiative helped the company cut down $30 million of its expenses from the year-ago period.
On the flip side, unfavorable currency translation continues to be a major dampener for the stock. In the second quarter, foreign exchange headwinds had a 500 basis points (bps), 150 bps and 6 cents impact on the company’s second-quarter sales, gross margin and EPS, respectively. In Asia, foreign exchange headwinds particularly affected sales growth in China and were widespread across the whole of Latin America.
Mead Johnson continues to witness an increase in price-based competition and channel shifts in China that require management to boost additional investment to protect its competitiveness. Intensifying competition and excessive reliance on large customers also pose threats to the stock.
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