Spice giant's earnings rise 7% McCormick's quarter is crimped, however, by sluggish U.S. sales


March 18, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

McCormick & Co. Inc. yesterday said sluggish U.S. consumer sales limited first-quarter earnings growth to 7 percent, but it expects future sales to be bolstered by two new contracts worth $72 million.

For the three months that ended Feb. 28, the Sparks-based spice giant reported net income of $16.2 million, up from $15.2 million in the year-earlier quarter. McCormick reported earnings per share of 22 cents, up 10 percent from 20 cents. Sales for the quarter were $415 million, a 2 percent increase from $407 million.

McCormick said sales increased in all parts of its business except for the U.S. consumer and packaging divisions.

"Our immediate objective is growing the U.S. consumer business," said Robert J. Lawless, president and chief executive officer.

U.S. industrial and food-service business achieved double-digit sales growth. The company also said it achieved modest growth in sales and profit in Europe and Asia, and that its packaging business suffered because of a soft market.

The results were pretty much what analysts had expected.

"This was a no-surprise quarter," said Prudential Securities analyst John McMillin. "They acknowledged some weakness in the seasoning business where there's a new competitor in Mexican sauces -- Taco Bell. And while sales were a little bit light, there seems to be a transformation going on in terms of new business activities."

New pricing and promotional programs, together with the "relaunching" of its dry seasoning mixes are part of that transformation. So are McCormick's new contracts with Price Costco and Ahold USA, McMillin said.

Price Costco operates 205 shopping warehouses in the United States. Ahold USA owns about 800 grocery stores, mostly in the Northeast.

"These represent a 4 percent increase in worldwide sales of $1.8 billion," or about $72 million, said Robert G. Davey, chief financial officer and executive vice president.

Davey said the contracts were previously held by Sydney, Australia-based Burns Philp & Co., which last month won approval from shareholders to raise $200 million as the company grapples with a huge debt.

For years, Burns Philp and McCormick were engaged in a costly war for shelf space that hurt both companies.

Last May, Burns Philp, a conglomerate, said it would sell its ailing spice business. One deal fell through, but the company said the business will likely be on the market this year.

McCormick's contracts with Ahold and Price Costco are based on volume and expected to last between three and five years.

McMillin, the Prudential analyst, said McCormick landed the new contracts partially because of Burns Philp's difficulties. He predicted that the company would increase consumer sales.

"I think you've got to look through the trees to see the forest," he said.

McCormick shares rose 18.75 cents to $31 yesterday, a 52-week high.

Pub Date: 3/18/98

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