Mead Johnson sees H2 recovery in China

Mead Johnson sees H2 recovery in China

US infant nutrition group Mead Johnson has highlighted "excellent progress" at its Chinese business in the back half of 2012 and after overcoming issues in the country in the first half of the year.

The company yesterday (31 January) booked a 7% jump in full-year sales, as a strong showing from its businesses in Latin America and China offset softer sales in the US and Europe. In China and Hong Kong, sales for the grew 5% to reach almost US$1.2bn, the company revealed.

Speaking during a conference call with analysts, Mead Johnson president and CEO Stephen Golsby was quick to emphasise a turnaround in the company's fortunes in the key Chinese market. During the first half, Mead had seen its market share eroded as it raised prices while a competitor offered aggressive promotions.

"While we fully acknowledge the first half challenge we faced in China, we made excellent progress in recovering market share in the second half, with further gains in the fourth quarter. And importantly, distributor inventories were restored to normal levels by year end," Golsby said.

While he was unwilling to "speculate" on whether there is likely to be another change in the promotional environment in the market, Golsby insisted Mead Johnson "is not seeing a significant worsening of that promotional environment between the last couple of quarters". He added: "We are certainly not driving it."

Rather than driving sales volumes through promotions, Golsby insisted the group preferred to build brand value. "We tend to prioritise equity building, advertising and activities. We believe that, that's ultimately what's going to drive our growth in China."

However, he added: "We are committed to defending our market share position and keeping price at a competitive level."

During 2012, Mead Johnson was able to realise single-digit price increases despite the highly price-sensitive environment, management revealed.

While the Chinese baby formula market is "certainly growing", expansion is at a "slower rate" than 2011, management revealed. This growth rate is expected to remain on a par during 2013, the group added.

Latin America is expected to be a significant growth engine during 2013 and in 2012 it delivered "the strongest growth among our regions," management indicated. Revenue from Latin America is "on track" to reach $1bn by 2015, the group added.

The market responded positively to Mead Johnson's results, with shares jumping 11.5% yesterday.