Mead Johnson Stock Falls to New Low After Revised Earnings Outlook

Mead Johnson Nutrition Co. shares dived to a fresh 52-week low on Wednesday after the baby-formula maker slashed its full-year outlook, citing weak sales during its second quarter ended in June.

The Chicago company released its earnings forecast after the closing bell on Tuesday, pushing shares as low as $83.50 on stronger than average volume Wednesday. Shares, down 16% this year, were at $85.37 in recent trading.

For the year, Mead Johnson, known for its Enfamil formula, said it now expects to report an adjusted per-share profit of $3.63 to $3.78 a share. That's down from its earlier range of $3.90 to $4 and well short of the $3.88 average analyst estimate. Sales will fall 2% to 4% from 2014, the company said, versus an earlier prediction of 2% sales growth this year.

A 7% drop in preliminary second-quarter sales from a year earlier prompted the guidance update. The company expects to post 76 cents a share in second-quarter earnings when it officially reports later this month, below the 85 cents analysts had anticipated.

Over 70% of Mead Johnson's revenue comes from outside of the U.S. The stronger dollar—effectively making its products more expensive abroad—has pressured sales. The company has stated several times this year that unfavorable currency rates pose a significant headwind.

But on Tuesday, Mead Johnson also pointed to slowing growth in China and emerging markets. The company has long grappled with issues stemming from China, including an antitrust probe there and discredited allegations of formula safety. Most recently, it faced tighter trade inventory levels ahead of its Enfamil relaunch.

"Strong sales of the recently launched imported products to China were insufficient to fully offset declines in the China-based manufactured products," the company said Tuesday.

In addition, Mead Johnson has faced a disruption in Hong Kong sales, which analysts at Nomura say are likely due to recent visa-allowance changes and protests on the Hong Kong-China border. While Hong Kong cross-border sales stabilized during the second quarter, Mead Johnson said Tuesday, they still fell below prior-year levels.

Dairy costs at near five-year lows have added to the company's woes, prompting margin-eating promotional discount pricing across Latin America and Asia, most notably in China. Lower dairy costs have reduced Mead Johnson's pricing power and the stronger dollar further reduces profits once they are brought back home.

The dairy-cost impact is a reversal of fortunes of sorts. In the first quarter, the company credited lower dairy costs for improved profitability.

Write to Lisa Beilfuss at [e-mail]

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