McCormick taking $60 million charge Write-off is for ending product lines, closing, selling businesses

June 08, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

McCormick & Co. will take $60 million in pretax charges for a series of actions that include ending product lines, selling businesses and closing a New York City packaging plant that employs about 100 people.

The move is the result of what the company called a comprehensive portfolio review aimed at making the Sparks spice giant more competitive.

Robert J. Lawless, president and chief operating officer, said the review was intended to find ways to lower the company's debt, determine the value of every business and promote growth.

"We believe this is right in line with what we've been talking about," he said. "We're in a turnaround period. Our commitment is to look at all of our businesses as we position the company for the future."

McCormick is expected to report its fifth straight quarter of declining earnings this month when the company gives results for its second quarter, which ended May 31. The company's stock closed yesterday at $21.875, down 50 cents.

McCormick will record a $57 million pretax charge in its third quarter for expenses related to the transactions. The company will take an additional $3 million charge as the transactions are completed.

The net cash charge to the company will be between $10 million and $12 million, said Robert G. Davey, vice president and chief financial officer.

McCormick said it projects the transactions will result in a 5 percent reduction in annual sales of about $1.9 billion.

The changes won't affect any Baltimore-based employees, the company said.

Disclosing only sparse information, Lawless and Davey said giving out details would hurt the company's competitiveness or be unfair to employees who will be affected by the transactions.

The company said it will close a plant owned by a packaging subsidiary, Setco Inc., in Brooklyn, N.Y. Officials at the plant said it has employed as many as 200 people, but that it currently has about 100 employees.

McCormick also will sell a dehydration company in Cairo, Egypt, that is a subsidiary of Gilroy Foods, a move that the company said was "consistent with" its decision last March to sell Gilroy Foods Inc. to ConAgra Inc., of Omaha, Neb. Also being sold are a number of small, "non-core businesses" that McCormick would not identify.

McCormick is also removing the sales force in the western portion of the United States from the company payroll, and placing salespeople with outside food brokers. The change will improve the delivery of products to the marketplace, company officials said.

Lawless said the company transferred its eastern sales force to food brokers in 1994.

Company officials wouldn't say how many workers would be affected. "The brokers are taking 100 percent of the salespeople," Davey said. "There will be nobody out of work."

Changes overseas

McCormick also said it will stop making "certain, minor non-core" products and "realign overseas manufacturing facilities." Davey and Lawless would not elaborate.

With yesterday's changes and the sale of Gilroy Foods, the company will be sacrificing more than $300 million -- about 16 percent -- of its total 1995 sales. McCormick is betting that it can make higher margins with what's left.

John M. McMillin, an analyst for Prudential Securities Inc., said McCormick was trying to clean up its low-return businesses.

Improving firm's focus

McMillin, who once called McCormick stock "dead money," ap- plauded the changes. Unlike a restructuring by the company in 1994, he said, "this is not a major effort to reduce employees. It's a major effort to improve business focus."

He said "the only reason the stock is down is that McCormick would not quantify any future benefits. If you tell us what the hit is, we want to know what the benefit is."

McMillin said the company's moves amount to actions, not just words. "I guess I've started to see the light at the end of the tunnel," he said. "And it's not another train."

Pub Date: 6/08/96

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