McCormick reports a loss of $24 million for quarter Spice firm lays drop to restructuring costs

September 25, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

McCormick & Co. Inc. yesterday said one-time restructuring charges resulted in a quarterly loss of $24.3 million -- down from net income of $19.9 million in the same period last year.

But without the $71 million charges, the Sparks spice giant said, its earnings would have been $23 million, up 16 percent from the same period last year and in line with Wall Street's expectations.

"After living through a series of disappointing quarters, it's good to see earnings come in on target with expectations," said John McMillin, an analyst who follows McCormick for Prudential Securities.

Wall Street reacted favorably to the news, which was announced in the morning, as McCormick's stock closed at $23.50, up $1.125.

The results for the third quarter, which ended Aug. 31, reflect a flurry of moves aimed at improving the focus of McCormick, which had reported five consecutive quarters of earnings below analysts' expectations.

In June, McCormick said it would take $60 million in pretax charges -- about $58 million in the third quarter -- for ending product lines, selling underperforming businesses and closing a New York City packaging plant.

Last month, McCormick said it had finalized the sales of Gilroy Foods Inc. -- its California-based garlic and onion dehydration business -- and a companion co-generation plant for $257 million. At the same time, the company announced a plan to buy back up to 10 million shares of stock.

The sale of the co-generation plant required repayment of a debt that carried an additional charge of $13 million.

With the changes, McCormick is giving up about $300 million in sales, about 16 percent of the company's $1.8 billion total. It's betting that a leaner, more focused company will deliver better results.

"Earlier this year, we made several commitments to shareholders," Charles P. McCormick Jr., chairman and chief executive officer, said. "These included a portfolio review, the sale of Gilroy Foods, a general reduction of debt and a return to earnings growth in the second half of the year. During the third quarter, we made significant progress toward achieving these commitments."

Pretax charges of $58 million and $13 million cut quarterly earnings about $47 million.

Because of the charges, McCormick reported a per-share loss of 30 cents, compared with a gain of 25 cents for the same quarter in the previous year. Without the charges, quarterly earnings per share would have been 29 cents -- up 16 percent, the company said.

Robert G. Davey, vice president and chief financial officer, said the company's stock rose yesterday despite the loss because investors understand the company's efforts to become more competitive.

"The market already knew about this," he said. "There are no surprises. The reality is that it was the right thing for the company, and the right thing to get us focused on our business."

Davey also said the company's debt-to-capital ratio was down from as high as 60 percent to below 45 percent. He said the company will generate enough cash not only to keep its debt low, but also to execute half of its 10 million-share buyback plan within six months.

"I'm encouraged looking at the numbers," said McMillin, the Prudential analyst. He said sales in Mexico appeared to be on the upswing, and he applauded McCormick's stock buyback plan.

McMillin, who called McCormick shares "dead money" early this year, now expects the company to earn 59 cents a share in the fourth quarter, up from 52 cents in the same period last year.

Pub Date: 9/25/96

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