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Mead Johnson Delivers Strong Earnings; Second Quarter Constant Dollar Sales Up 11 Percent

Six-Month Results

Net sales for the six months ended June 30, 2012, totaled $1,998.9 million, up 9 percent from $1,831.8 million a year ago. Sales benefited 6 percent from price and 4 percent from volume, reduced by 1 percent from foreign exchange.

Gross margin was down 190 basis points versus the first six months of 2011 due to higher dairy costs in the North America/Europe segment. Manufacturing variances were also unfavorable, largely attributed to lower production volume in our North America/Europe segment. These increased costs were partially offset by higher pricing as well as productivity gains.

EBIT for the first half of 2012 totaled $497.1 million, up 17 percent from $426.3 million a year earlier. The EBIT increase was driven by sales growth, lower expenses related to the SAP implementation completed in 2011 and the elimination of duplicate costs from the overlap in shared service providers and favorable foreign exchange. These factors were partially offset by lower gross margins, higher demand-generation spending and the timing of pension settlement expense.

The effective tax rate for the six months ended June 30, 2012 was 26.7 percent versus 29.2 percent a year ago. The decrease in the effective tax rate was primarily attributed to a change in geographic earnings mix and to higher manufacturing incentives.

Net earnings attributable to shareholders for the first half of 2012 totaled $330.0 million, or $1.61 per diluted share, compared with $278.2 million, or $1.35 per diluted share, a 19 percent increase from the prior-year period. Net earnings for the six months ended June 30, 2012 benefited from the EBIT increase and a lower effective tax rate.

On a non-GAAP basis, which excludes specified items, net earnings attributable to shareholders totaled $338.6 million, or $1.65 per diluted share, for the first half of 2012, compared with $305.5 million, or $1.48 per diluted share, an 11 percent increase from the same period a year ago.

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