McCormick posts loss in 4th quarter

January 17, 1995|By Kim Clark | Kim Clark,Sun Staff Writer

McCormick & Co.'s latest layoff and restructuring, which turned out to be slightly more expensive than expected, pushed the spice company into the red in its fiscal fourth quarter.

The Sparks-based company said yesterday that it lost $2.7 million on sales of $508.6 million in the three months that ended Nov. 30. That compares with earnings of $40.5 million on sales of $460.7 million in the same period a year ago.

McCormick officials attributed the loss to a $70.4 million pretax charge taken to cover a layoff and early retirement offer that will reduce the company's worldwide work force by 7 percent, or 600 positions, and the closure of at least two plants.

The layoffs are to begin next month. And the plants, including one in Hunt Valley, will be closed later this year, the company said.

When it announced the restructuring in October, the company had said it expected to take a charge of up to $66 million.

But Chief Financial Officer Robert G. Davey said that the charge turned out to be higher because of a variety of increased costs, including some employees with "a little longer service" than predicted who chose to retire.

For the year, McCormick earned $61.2 million on sales of $1.7 billion, compared to earnings of $73 million on sales of $1.6 billion in 1993. The previous year's earnings were reduced by $26.6 million to cover employee retirement benefits.

Contributing to the decline was a $7.5 million increase in interest expense, primarily due to rising rates. McCormick also has borrowed an additional $28 million this year to pay for acquisitions of small food companies around the world.

Investors yesterday reacted calmly to the news, sending the stock to $20.0625, down 6.25 cents.

Mr. Davey and stock analysts said some investors appear to have bought up stock in McCormick and other food companies because of recent takeover rumors.

For example, on Jan. 10, the day after Pillsbury's parent company agreed to buy Pet Inc. for $2.6 billion, many food companies' stocks rallied, said Mitchell Speiser, a food industry analyst for NatWest Securities Corp. in New York. That day, McCormick's stock jumped $1.

"There are just so many rumors rampant everywhere" about other takeovers, Mr. Speiser said. But he said he knew of no bids for McCormick.

Kurt Funderburg, who follows McCormick for Ferris Baker Watts in Baltimore, said that while some food giants such as Nestle or Philip Morris "would love" to own McCormick, theories about any takeover of the company are "largely fantasy."

McCormick's corporate bylaws make it almost impossible for anyone to buy the company without the endorsement of the company's founding family as well as other holders (mostly McCormick's employees) of its voting shares.

And Mr. Funderburg said McCormick shareholders aren't under any pressure to sell because the company's profits are expected to rebound later this year as the restructuring's savings kick in.

Sales are continuing to grow by about 10 percent a year, and Mr. Funderburg expects profits to follow suit soon.

"McCormick is a very strong company with very strong cash flow," he said.

Mr. Davey confirmed that McCormick "was named as a company like Pet" in recent industry publications about food industry takeovers.

"All it takes is a scent of anything positive or negative" to move a stock, he said.

But he said that in this case, the scent is misleading.

He and other McCormick executives "have always said and continue to say that we want to remain independent."

But Mr. Davey said he was glad to see the recent stock run-up for another reason: "I think the stock is undervalued, and a lot of people on Wall Street right now are talking about what a real good value" it is, he said.

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