Spice giant's profits plunge McCormick's report for first quarter below analysts' estimates

March 19, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

McCormick & Co. Inc.'s first-quarter profits fell by half, the Sparks-based spice giant said yesterday, falling below even grim Wall Street expectations sparked by the company's pessimistic public statements.

The company continued to make narrower profit margins because of stiff competition for its top share of the U.S. spice market and rising raw material prices, especially for packaging. McCormick compounded its short-term problems, hoping for a longer-term payoff, by spending $10 million more on advertising than it did during the same months of its 1995 fiscal year.

"We don't know when those issues are going to be behind us," McCormick Treasurer Christopher J. Kurtzman said. "It's costly to defend our share, but we've been successful. We believe it's necessary."

McCormick said it made $9.4 million for the three months that ended in February, or 12 cents a share. The period was the first quarter of McCormick's fiscal year, and the fourth straight quarter its results have come in below expectations.

Analysts had expected per-share earnings of anywhere from a dime to 26 cents; expectations had fallen since McCormick gave a very downbeat presentation to an analysts' meeting in Flori- da Feb. 23. The company was more optimistic yesterday. "Although our earnings performance in the first quarter is disappointing, it is on budget," McCormick Chief Executive Charles P. McCormick Jr. said. "While we anticipated difficult comparisons in the first half of the year, particularly in the first quarter, we do expect to see improvement as the year progresses."

Last year, the company made $19.3 million, or 24 cents a share, in the same three months. Big culprits included the advertising campaign and the loss of about $3.9 million in pre-tax restructuring-related credits last year that were not duplicated this year. A lower tax bill offset some of the damage.

"They had a lousy quarter, but it wasn't a surprise," said NatWest Securities Corp. food analyst David Nelson, who had thought McCormick would earn 16 cents a share. "Wall Street was forewarned. By the time we got to today, we had pretty much written off the quarter as lost."

He said that's one reason why the bigger-than-expected loss did not hurt McCormick's stock price. The shares actually rose 12.5 cents to close at $22.50, in relatively heavy trading.

But over time the stock news has been worse: McCormick's shares were at $24.75 at the end of March 1993. Since that time, the Standard & Poor's 500 has risen 42 percent.

In recent months, McCormick has talked tough about what it is willing to do to boost its stock. And recent events have given Wall Street reason to believe McCormick will walk its talk.

Both John McMillin of Prudential Securities Inc. and Mr. Nelson said McCormick's earnings announcement was overshadowed by Friday's news that it is selling its big, underperforming onion and garlic unit to ConAgra Inc.

"Before Friday, a lot of management's statements were words, not action," said Mr. McMillin, a prominent food industry observer. "The Gilroy divestiture shows tangible evidence of a desire to become more shareholder-oriented."

Said Mr. Nelson: "The real investment issue isn't 16 vs. 12. The real issue is, are they serious about reforming the company."

Pub Date: 3/19/96

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