Mead Johnson Hopes To Milk JV For Latin American Growth
This article was originally published in The Tan Sheet
Executive Summary
An 80-20 joint venture with dairy producer SanCor likely will help Mead Johnson cement its footprint in Argentina and other Latin American countries. Meanwhile, the pediatric nutritionals firm maintains muted expectations for the U.S. in 2012.
Mead Johnson Nutrition Co. aims to accelerate its growth in Latin America via a joint venture with Argentinian dairy producer SanCor Cooperativas Unidas Ltda.
The infant nutritionals company likely seeks a level of growth in Latin America comparable to what it has achieved in Asia – especially China, which became Mead Johnson’s largest market in 2011.
Two days before announcing the JV, Mead Johnson executives offered muted expectations for the mature U.S. market during the Consumer Analyst Group of New York conference Feb. 22.
Mead Johnson will own 80% of the alliance with Buenos Aires-based SanCor, slated to be finalized and begin operations in March. The JV will develop dairy infant nutrition products under the SanCor Bebe brand and market them in Argentina, Bolivia, Chile, Paraguay and Uruguay.
The alliance with SanCor is not Mead Johnson’s first use of a JV to amplify its presence in international markets. The Glenview, Ill., firm in March 2010 entered into a 50-50 partnership with Saudi food and beverage company Almarai to market Enfamil and other formula products in the Middle East (Also see "Mead Johnson Expands Presence In Emerging Markets With Middle East JV" - Pink Sheet, 5 Apr, 2010.).
At CAGNY, Mead Johnson Executive VP and Chief Operating Officer Kasper Jakobsen noted that the company is using a “step change” strategy to expand city by city in Brazil – much as it has done in China – but was “still searching for ways to build a credible presence” in Argentina (Also see "Mead Johnson Looks City To City In Chinese Expansion Strategy" - Pink Sheet, 7 Mar, 2011.).
Presumably, the SanCor alliance goes some way toward cementing Mead Johnson’s Argentinian footprint.
With middle-class families expanding across Latin America, Mead Johnson hopes to generate annual sales of $1 billion in the region beginning in 2014. Latin American countries make up three of the company’s top 10 markets – No. 3 Mexico, No. 8 Brazil, and No. 10 Peru.
Mead Johnson targets global revenue growth between 7% and 9% in 2012, which would equal sales of $3.93 billion to $4 billion. That increase depends mainly on continued progress in China and the rise of Latin America, while the eventual recovery of the U.S. business merely would be “a bonus,” Jakobsen told analysts.
This year may be particularly challenging in the U.S., Mead Johnson’s No. 2 market, given the persistently low birth rate and a tough year-over-year comparison with 2011, when [Abbott Nutrition] temporarily ceded share to competition following its Similac powdered formula recall.
Jakobsen estimated the depressed birth rate and generally lower consumption will negatively impact the U.S. pediatric nutritionals industry by 2% to 3% in 2012.
Additionally, media reports that in late 2011 suggested a link between Mead Johnson’s Enfamil Premium Newborn powder and an infant death shook the confidence of some consumers, though testing eventually showed the product clear of bacterial contamination (Also see "In Brief" - Pink Sheet, 9 Jan, 2012.). Jakobsen said the loss of those consumers at the newborn stage likely will affect the firm’s U.S. sales through the third quarter.
Mead Johnson expects North America/Europe sales, which grew 3.2% to $1.25 billion in 2011, will fall by mid-single-digits this year.