McCormick's earnings in 2nd quarter off 31% Chief predicts growth in year's second half


June 19, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

McCormick & Co. Inc.'s second-quarter earnings fell 31.5 percent -- below Wall Street's expectations for the fifth consecutive quarter -- but analysts said the Sparks spice giant might soon break out of its slump.

The company said yesterday that its net income for the period ended May 31 was $11 million, compared with $16 million for the same period last year. On a per-share basis, McCormick earned 14 cents, down 30 percent from 20 cents in the same quarter last year.

McCormick blamed the results on price increases that dampened sales, a movement by stores to reduce inventories and declining earnings at one of its packaging subsidiaries.

Charles P. McCormick Jr., chairman and chief executive officer, noted that the company had indicated previously that it would have a disappointing half-year. McCormick's first-quarter profits fell by half, from $19.3 million to $9.4 million.

In a statement, he said a recently announced restructuring plan will allow McCormick to focus on its "core" strengths. That plan includes taking a $57 million pretax charge in the third quarter to sell businesses, close a package plant and end some product lines.

"We are continuing to turn up the heat on driving our brands and expect better overall results for the remainder of the year with a return to growth in the second half," the chairman said.

Analysts had expected earnings of about 18 cents a share.

"The earnings weren't good news," said John McMillin, an analyst with Prudential Securities. "But they weren't surprising news."

Despite the subpar performance, David C. Nelson, a NatWest Securities analyst, said third-quarter earnings will be about 32 cents per share, up from 25 cents.

He said Burns Philp & Co., McCormick's Australian rival, is struggling. Nelson also said McCormick's industrial products, Asian Pacific consumer goods and its packaging operation are strong performers. "They have growing businesses," he said.

McCormick shares closed yesterday at $22, unchanged from Monday.

Robert G. Davey, McCormick's vice president and chief financial officer, said the earnings "are really not much off where we expected to be."

He said the timing of two price increases worked against the company's second-quarter performance -- one last year and another this year.

McCormick announced in the second quarter last year that it would raise prices in the third quarter. Customers responded by buying more goods in the second quarter than in the third. That boosted second-quarter earnings -- the benchmark for this year's performance.

And when McCormick said in the first quarter this year that it would raise prices in the second quarter, customers bought more in the first quarter and less in the second quarter. That suppressed earnings for this year's second quarter.

Davey said more than half of the company's top 50 customers are trying to reduce inventories. That's another drag on sales.

Finally, he said, a subsidiary that provides plastic tube packaging for the cosmetics industry absorbed losses from excess production. He said customers used to pay for extra tubes, but the burden now falls on the company.

Davey said McCormick's interest expense dropped more than $2 million, to $12 million -- part of an effort to lower its ratio of debt to total capital, which was 55.5 percent in 1995.

Pub Date: 6/19/96

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