Mead Johnson shares slide on baby formula concern

NEW YORK

Shares of Mead Johnson Nutrition tumbled for a second day with more stores yanking its baby formula off shelves following the death a newborn in Missouri.

THE SPARK: Wal-Mart Stores Inc. pulled a batch of Enfamil Premium Newborn powdered formula off store shelves Wednesday after a boy who had been given the formula, Enfamil, contracted a bacterial infection called Cronobacter sakazakii and died. Walgreen Co., Kroger Inc., Supervalu Inc., and Safeway Inc. took the same step Friday. Health officials are investigating. The batch of Enfamil in question has not been recalled by Mead Johnson.

THE BIG PICTURE: The Glenview, Ill., company said all batches of Enfamil are tested for Cronobacter bacteria before they are shipped, and if an ingredient or batch are found to contain the bacterium, they are rejected. They said the lot used by the newborn's family did not test positive for Cronobacter when the company tested it.

THE ANALYSIS: In a note published Thursday, Deutsche Bank analyst Eric Katzman said the contamination could have also come from the local water supply, and test results should be available soon.

Citi Investment Research analyst David Driscoll said a similar recall in September 2010 cost Abbott Laboratories $100 million in lost Similac sales, and caused the company's stock to fall about 10 percent. But infant formula is a much smaller business for Abbott Labs than it is for Mead Johnson. Standard & Poor's Ratings Services said on Friday that about 60 percent of Mead Johnson's revenue comes from infant formula sales.

Driscoll said the removal of one batch of formula won't affect Mead Johnson's business, but investors are clearly concerned this will lead to a much bigger recall.

"This is just about the most dangerous kind of news for a highly focused company that sells a product that must maintain 100 percent perfect safety standards," Driscoll wrote. "It is unclear if Enfamil Newborn is at fault in the infant's death, but Walmart's decision to remove Enfamil Newborn from the shelves raises our concerns significantly."

Standard & Poor's said Friday that it has not changed its ratings and outlook on Mead Johnson. It has an investment-grade "BBB" rating on Mead Johnson's credit. But the firm said Mead Johnson could lose sales if there is a prolonged investigation, and its brands could suffer.

SHARE ACTION: Shares of Mead Johnson Nutrition Co. stock fell $4.35, or 6.3 percent, to $64.41 in afternoon trading. The shares dropped 10 percent Thursday. They have traded between $55.12 and $76.91 in the last year.