Spice giant's profit up 6% McCormick's quarter had been expected to come in slightly higher


September 17, 1998|By William Patalon III | William Patalon III,SUN STAFF

McCormick & Co., the Sparks-based spice giant, said yesterday that it earned $21.45 million in its fiscal third quarter ended Aug. 31, a 6 percent increase from the $20.21 million it earned in the corresponding period the year before.

Earnings per share rose 7 percent, to 29 cents, from 27 cents per share a year ago. Analysts had been expecting the company to earn 30 cents, according to a survey conducted by Zacks Investment Research.

The company said overall results had been hampered by the rising dollar and the recession in Asia, and one analyst said she focused more on the significantly better performance of McCormick's domestic business than she did on the missed estimate.

"They are turning their U.S. retail operation around; the programs they've implemented are taking hold," said analyst Judith DeHoff, who follows McCormick for Legg Mason Wood Walker Inc. in Baltimore.

Sales rose to $444.79 million, a 5 percent increase from the $422.87 million the company notched in the 1997 quarter.

New products, better positioning on grocery-store shelves and price-cutting that sent Australian rival Burns, Philip & Co. to near bankruptcy have all combined to help McCormick in its home market -- particularly when it comes to new contracts with retailing heavyweights Price Costco and Ahold USA.

Ahold's Dutch parent, Royal Ahold NV, announced in May that it would be acquiring Landover-based Giant Food Inc. for $2.7 billion cash. That deal is still pending and will make Ahold the No. 4 supermarket retailer in the United States.

McCormick said its sales and operating profits for its U.S. business jumped 10 percent in the third quarter, and Chief Financial Officer Francis A. Contino said that recent cash-register scanner data showed that McCormick was gaining share in a market that has been flat or down.

"We are very pleased with the performance of the food business," Contino said.

In the nine months ended Aug. 31, McCormick earned $53.75 million, a 9 percent jump from the 1997 period.

Earnings per share were 73 cents, up 11 percent from the 65 cents reported the year before.

The fourth quarter is always the biggest for McCormick, and Wall Street is expecting the company to post earnings of 74 cents for the quarter and $1.47 for the year.

Sales for the nine months grew 4 percent to $1.3 billion. For all of fiscal 1997, sales reached $1.8 billion.

Legg Mason's DeHoff on Sept. 8 raised her rating on McCormick from "market perform" to "buy" and predicted that the stock will reach $38 in 12 months. The shares rose 12.5 cents to $28.9375 yesterday.

DeHoff says she expects earnings to grow 12 percent for this year and 16 percent next year. That's a growth rate that's a bit less than the stock's current price/earnings ratio of 20.8, but both DeHoff and Contino said McCormick shares should command a premium price in such an uncertain and volatile stock market.

"These kinds of companies -- low-risk companies, defensive stocks -- are pretty hard to ignore, especially in a market like the one we've seen," DeHoff said.

The Sydney-based Burns, Philip in August disclosed that it had headed off bankruptcy by reducing debt and landing a three-year line of credit.

But it long ago threw in the towel in its battle with McCormick, leaving the Sparks company with the dominant share -- about 40 percent -- of the U.S. spice and seasonings business.

"The Ahold account was a direct result of that" battle with Burns, Philip, said McCormick's Contino.

Pub Date: 9/17/98

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