US infant formula producer Mead Johnson today (28 July) revised its net sales outlook and said it now expects full year net sales of 5% to 7% below the prior year on a reported basis and 0% to 2% below the prior year on a constant dollar basis.
The announcement came as the company reported second-quarter net sales of US$941.5m. Earnings before interest and income taxes was US$214.4m, which was 6% below the prior year quarter.
“The revision is driven by increased customs processes at border points in China, lower-than-expected US market share in the first half of the year, as well as increased trade investments in China,” Mead Johnson said.
CEO Kasper Jakobsen added: “As we move through this year, I am pleased that we continue to deliver against our profit objectives despite a challenging global operating environment. We are making good progress with our portfolio and channel transformation in China despite near-term challenges. We are aligning the organisation behind more ambitious operating cost reductions in support of both our growth and value creation strategies.”
In Asia, sales were 11% below the prior year quarter on a reported basis, the company said. “Sales were negatively impacted by adverse foreign currency translation, mainly in China. On a constant dollar basis, sales were 7% below the prior year quarter, primarily driven by an increase in trade investments in China, a portion of which were reallocated from advertising and promotion spending.”
The company said additional impacts to sales included new product testing for imported goods in China towards the end of the second quarter and market share losses in its mid-priced children’s products in the Philippines.
In Latin America, sales were 16% below the prior year quarter on a reported basis. The segment was negatively impacted by adverse currency translation, mainly in Mexico and Argentina, the company said. “Momentum in Mexico and Colombia did not fully offset macroeconomic challenges in Brazil, Venezuela and Argentina. Excluding the impact of suspended shipments into Venezuela, constant dollar sales increased by 4%. Price increases taken in 2016 in key markets across the segment offset a substantial portion of the adverse foreign exchange impact across the segment.”
In North America/Europe, sales were 1% below the prior year quarter on a reported basis and were flat on a constant dollar basis, the company said. “In the US, the company experienced lower-than-expected market share, which was partially offset by market share gains in both infant and children’s products in Canada.”
Selling, general and administrative expenses in the second quarter decreased 10% compared to the prior year quarter, the company said. “Excluding specified items and the impact of foreign exchange, non-GAAP selling, general and administrative expenses were down 9% compared to the prior year quarter as a result of the company’s Fuel for Growth programme.”
“Additional savings opportunities of US$60m have been identified within Fuel for Growth, resulting in expected total cost savings of approximately US$180m by 2018. The programme is ahead of schedule and is now expected to deliver approximately US$75 to US$80m of savings in 2016.”