Mead Johnson skids as company says discounts and weak sales in China hurt its business

Markets Associated Press

Shares of Mead Johnson Nutrition are falling after the infant formula maker forecast a weak second quarter and cut its estimates for the year, saying sales in China were disappointing and discounts were steep.

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The Enfamil maker's shares lost $2.52, or 2.9 percent, to $85.61 in afternoon trading, and earlier it reached an annual low of $83.50. The stock is down 16 percent since the beginning of March.

Mead Johnson Nutrition Co. said sales of products made in China and of products made in Hong Kong and sold in China have dipped compared to a year ago. The company also said it cut prices in China and some other Asian markets as well as those in Latin America. That's because sales growth in those markets has slowed down and dairy prices are close to five-year lows, leading its competitors to offer discounts.

The strong U.S. dollar also affects the company's overseas sales, making its products relatively more expensive. Mead Johnson said sales of imported products in China were strong, and it also said its North American and European business are doing well.

BMO Capital Markets analyst Amit Sharma said the discounts in China were more common and were larger than he expected, but based on the sales of the company's imported formula and its sales in North America, he thinks the business will get strong in the next year. Sharma rates the shares "Market Perform."

The Glenview, Illinois-based company is forecasting an adjusted profit of 76 cents per share in the second quarter, and said its revenue will decrease about 7 percent, to around $1.03 billion.

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Mead Johnson now says it expects to earn between $3.63 and $3.78 per share in 2015 excluding one-time gains and costs, and said revenue will slip 2 to 4 percent, to a range of $4.23 billion to 4.32 billion. The company had estimated a profit of $3.90 to $4 per share and said revenue would grow 2 percent, suggesting a total of about $4.5 billion.

FactSet says analysts were expecting a profit of 88 cents per share and $1.1 billion in revenue in the second quarter. For the full year, they had projected net income of $3.91 per share and revenue of $4.43 billion.

Mead Johnson is scheduled to report its second-quarter results on July 23.