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Can Mead Johnson (MJN) Spring a Surprise in Q1 Earnings?

Zacks

Mead Johnson Nutrition Company MJN is expected to report first-quarter 2017 results on Apr 27, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 6.02%. However, Mead Johnson’s earnings outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 2.88%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

In the last reported fourth quarter of 2016, Mead Johnson witnessed strong momentum in some of the emerging markets. In Mexico, management observed improved performance in both the company’s premium pediatric nutrition and milk modifier businesses. Management also announced plans to roll out its new plastics packaging and refill systems across Latin America starting fiscal 2017. We believe that this initiative will boost the top line in the yet-to-be reported first quarter of 2017.

Mead Johnson Nutrition Company Price and EPS Surprise


Mead Johnson Nutrition Company Price and EPS Surprise | Mead Johnson Nutrition Company Quote

In the recent past, despite a sluggish Asian segment, the company performed well in China and Hong Kong with improvements in both volume and products mix. With several recent initiatives including management’s focus on strengthening competitive position in growing channels, we expect the momentum to continue in the first quarter.

On the flip side, foreign exchange fluctuations and stiff competition add to Mead Johnson’s woes. Management also claims that it is currently facing stiff competitive challenges in the U.S. which may mar its first-quarter 2017 performance.

Meanwhile, Mead Johnson agreed to be acquired by British consumer-products maker, Reckitt Benckiser Group plc for $17.9 billion. The former claims the deal (expected to be closed by third-quarter 2017) to be a strategic fit as the completion of the integration will lead to 3–5% growth in Mead Johnson’s global infant and children’s nutrition category.

Since the deal was inked on Feb 9, Mead Johnson has been trading above the Zacks categorized Food-Misc/Diversified industry. Per the latest share price movement, the stock gained 11.1% over this period, much higher than the 0.3% gain of the broader industry. Taking into consideration Mead Johnson’s dull 2016 performance, the deal has instilled confidence in investors over the company.

Earnings Whispers

Our proven model does not conclusively show that Mead Johnson is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Mead Johnson has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 82 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mead Johnson’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Galectin Therapautics, Inc. GALT has an Earnings ESP of +13.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom Holdings Inc HRC has an Earnings ESP of +1.27% and a Zacks Rank #2.

Syros Pharmaceuticals, Inc. SYRS has an Earnings ESP of +3.85% and a Zacks Rank #2.

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