Six-Month Segment Results

The Asia/Latin America segment had net sales of $1,396.5 million for the first half of 2012, up 18 percent from $1,188.5 million in 2011. Sales benefited 11 percent from volume and 7 percent from price. The majority of the markets in the segment delivered double-digit constant dollar sales growth driven both by price increases and higher volumes. Sales also benefited from the Argentine acquisition which closed in March 2012. EBIT for the segment totaled $516.5 million, up 21 percent compared with $426.6 million for the year-ago period. The EBIT increase was primarily related to sales growth and improved gross margin, partially offset by increased demand-generation investments.

The North America/Europe segment reported net sales of $602.4 million for the first half of 2012, down 6 percent compared with $643.3 million in 2011. Sales benefited 4 percent from price, offset by a 9 percent decline in volume and a 1 percent reduction from foreign exchange. Segment sales declined from lower U.S. market share, as well as lower category consumption and births. Market share was lower in comparison to the prior year when we benefitted from a competitor’s recall and due to the current year impact of the unfounded media reports in December 2011 of alleged product contamination. EBIT totaled $108.3 million, down 40 percent compared with $179.3 million in the same period a year ago. The EBIT decrease was attributed to lower sales, higher dairy costs and unfavorable manufacturing variances.

Corporate and Other expenses decreased from lower IT and separation costs, foreign currency balance sheet re-measurement gains and the elimination of duplicate shared service costs incurred during the SAP implementation project completed in 2011, partially offset by pension settlement expense triggered earlier than in the prior year.

Outlook for 2012

“We are pleased with our strong second quarter results; however, we anticipate slower growth in the second half of 2012. Annual constant dollar sales are now expected to grow in the range of 8 to 9 percent compared to the 9 to 11 percent sales growth anticipated earlier in the year. Slower growth in China is partially offset by an improvement in our U.S. business. Our full-year non-GAAP earnings are estimated in the range of $3.04 to $3.14 per share,” Mr. Golsby noted. “Lower sales growth in China is partially offset by favorable foreign currency balance sheet re-measurement gains and a lower sustainable effective tax rate. We estimate the effective tax rate will be in the range of 26 to 27 percent. While expecting weaker third quarter growth, we remain confident that we will exit the year with improved market share in China and that our strategies and execution will deliver strong earnings performance.”

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