UPDATE 4-Mead Johnson keeps outlook despite lower China prices

Thu Jul 25, 2013 1:28pm EDT

By Martinne Geller

July 25 (Reuters) - Mead Johnson Nutrition Co, maker of Enfamil baby formula, stood by its full-year forecast on Thursday despite having to lower prices in China amid a government probe.

Its shares jumped 7 percent to $75.73.

Mead Johnson and rival formula makers including Abbott Laboratories, Danone SA and Nestle SA , have cut prices of their products in China in recent weeks due to an investigation by the government into possible price-fixing and anti-competitive behavior.

The price cut should reduce Mead Johnson's 2013 sales by about $30 million, it said. In the future, the annual impact should be about double that.

Still, the company stood by its 2013 forecast, which calls for earnings per share of $3.22 to $3.30 and sales growth of about 8 percent, saying the lost revenue would be made up by stronger growth in markets besides China, a likely reduction in promotions and stronger results in Hong Kong.

Because the investigation by the Chinese government is continuing, Mead Johnson said it was too early to quantify the ultimate impact.

Analysts see the probe as possibly part of a broader Chinese plan to boost consumption of local infant milk products. Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the industrial compound melamine killed at least six babies and made thousands sick with kidney stones.

Due to safety concerns, travelers from mainland China began flocking to Hong Kong to buy formula in bulk, and store shelves were often left empty. In March, the Hong Kong government limited the number of cans of milk powder a person can take back to the mainland to two per visit. It plans to revisit the restrictions in October, though Mead Johnson said its outlook assumes no change to the restriction.

Mead Johnson's sales in Hong Kong in the second quarter, which began in April, were below that of the first quarter though still higher than a year ago, the company said. It still expects higher annual sales. The company added that it believes the bulk of its product sold in Hong Kong is still being brought into China.

The company said it does not expect its 7 percent to 15 percent price reductions in China to impact consumer buying habits.

Overall, net income was $162.2 million, or 80 cents per share, down from $165.8 million, or 81 cents per share, a year earlier.

Excluding legal settlements, related costs and other special items, earnings were 84 cents per share. On that basis, analysts on average were expecting 83 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 4 percent to $1.06 billion, topping Wall Street expectations of $1.04 billion.

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