US infant nutrition group Mead Johnson says it is facing tough comparables this year due to pricing problems in China in 2012 but said it expects a rebound in growth in the back half of 2013.
Addressing the Consumer Analyst Group of Europe conference in London yesterday (20 March), president and CEO Stephen Golsby admitted the company had suffered a setback in the middle of 2012 due to pricing actions it took during the year.
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During the first half, Mead had seen its market share eroded as it raised prices while a competitor offered aggressive promotions.
“We made a pricing mistake and we suffered a rather significant drop in market share as result of that,” Golsby said. “We took a price increase that happened to proceed a drop by our competitor and became expensive.”
The CEO said that an “unstable” pricing environment meant the company was either “very unlucky or not very skilled” in its own pricing actions during the half.
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Nonetheless, Golsby said the company took “quick actions” to correct the mistake and despite the setback exited the year with a mid-single-digit price increase that he said “appears to be sticking”.
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By GlobalDataHe said: “This means you should expect some tough comparables in 2013. You can see that a higher market share and our higher sales in China, together with an inventory bill in Q2 means we are facing tough comparables. The upside is that in the second half of 2013 these should be corresponding easier and we expect the growth rates to rebound, and if all goes according to plan, translate into growth.”
The company has been open about the challenges it has faced in China, its key market. But last month the group 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.
“Through 2012 there was a significant reset of the promotional environment in China and I’m glad to say that has now been stable through the third and fourth quarter and we are now thinking about this new pricing environment as a new norm that we will continue to build off. We have also overcome the association problems of inventory that exist in China.”
He added: “We are also happy our brand plays in the premium segment and that allows us to incorporate ever better technology in our product. We made corrections in the third quarter and we have recovered two-thirds of the share we lost.”
Golsby dismissed suggestions there has been a slowing of the premium sector in China.
“We have not seen that the premium sector in China is slowing. Many have remarked that volume growth there is not very dramatic but it’s also not very surprising. China remains a fantastic opportunity for us. It is our single biggest opportunity.”
Globally, however, Golsby said the company was continually on the look out for new growth opportunities, either in new markets or to enhance its innovation pipeline.
“We will look at opportunities and consider higher investment in our business. We’re not only focused on delivering earnings growth, but also strong and stable cash flow. Free cash flow was over US$0.5bn last year and demonstrates the strong quality of our earnings.”
Golsby told analysts that while Mead Johnson started out as a US business, it has since pursued geographic growth and that eight of its top ten markets are now in the fast growing regions of Asia and Latin America.
“The next three also come from the top three growing emerging markets. These are capabilities we feel very proud of.”
The Mead Johnson chief also told CAGE the company could withstand the prospect of growing competition in China following Nestle’s acquisition of Pfizer’s infant formula business last year.
