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Mead Johnson: SEC Looking into China Business Practices

Fri, 10/25/2013 - 9:50am

GLENVIEW, Ill. (AP) — Mead Johnson Nutrition said Thursday the Securities and Exchange Commission is looking into its business practices in China, and the company said it is also conducting its own investigation.

Mead Johnson said the SEC has asked for documents related to the business activities of its local subsidiary in China. The company said it is complying with the inquiry. Mead Johnson said its own investigation concerns spending connected to product promotions that may have violated company policies or U.S. law.

In midday trading, the company's shares fell $2.49, or 3 percent, to $79.87.

The Chinese government launched an investigation in July into alleged price-fixing by several foreign companies that make baby formula, including Mead Johnson. Mead Johnson and other suppliers including Nestle announced price cuts after the investigation was launched. In August the company's Chinese division had been fined at $33 million. Two other companies received smaller fines.

Demand for foreign milk formula in China increased after scandals that have left many parents wary about domestically produced infant formula. In 2004, fake Chinese milk powder caused malnutrition deaths in at least a dozen babies. That was followed by a melamine-tainted milk scandal in 2008 that killed at least six babies and sickened nearly 300,000 others.

Mead Johnson Nutrition Co. said its net income rose 15 percent in the third quarter, to $161.6 million, or 79 cents per share, from $140.3 million, or 69 cents per share. Excluding the fine and other one-time items the company said it earned 91 cents per share. Its revenue rose 14 percent, to $1.05 billion from $921.3 million.

Analysts expected net income of 80 cents per share and $998 million in revenue, according to FactSet.

For the full year, Mead Johnson is now forecasting an adjusted profit of $3.30 to $3.37 per share, above its previous forecast of $3.22 to $3.30 per share. The estimate excludes special items worth 18 cents per share, including the administrative penalty. Sales are expected to rise 7 percent to 8 percent, up from its prior estimate of 6 percent.

Analysts are projecting net income of $3.28 per share and revenue of $4.14 billion, which would represent growth of 6 percent from 2012.

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