McCormick & Co. Inc. reported lower-than-expected earnings yesterday for its fourth quarter that ended Nov. 30, though President and Chief Executive Officer Robert J. Lawless vowed that the Sparks-based spice-and-seasonings company would notch earnings growth in the low double digits in 1999.
McCormick shares closed yesterday at $30.6875, down $1.5625, after the company said it earned 68 cents per share in the quarter. That was a slight improvement over the 65 cents the firm reported for the corresponding period the year before, but fell short of Wall Street's consensus estimate of 73 cents, according to Zacks Investment Research.
The earnings "were a little bit light," Lawless said yesterday.
For the year, the company earned $103.83 million, or $1.42 a share, on sales of $1.88 billion.
Legg Mason Wood Walker Inc. analyst Judith M. DeHoff downgraded the stock yesterday to "outperform" from "buy" and cut her 12-month target price to $36 from $38. However, she still thinks the stock is very attractive -- particularly in a volatile market.
"There's nothing wrong with this company," she said. "It's just not hitting on all cylinders yet."
DeHoff pointed to sales growth as perhaps the problem. Sales rose about 5 percent, from $556.97 million in 1997's fourth quarter to $585.7 million in the 1998 final quarter. The fourth-quarter earnings of $50.08 million also represented a 5 percent jump over the $48.19 million McCormick recorded in 1997's fourth quarter.
With the company's tremendous performance in its core U.S. market -- where it holds about a 40 percent market share for spices and seasonings -- DeHoff said she expected a bit more overall sales growth.
For instance, according to independent research on "unit" sales in supermarkets and drugstore chains cited by DeHoff, McCormick's sales in the spices, seasonings and peppers category were up 8 percent, while that retail category as a whole was down 2 percent. In the dry-seasonings area, the number of McCormick packets passing through the checkout line jumped 13 percent, while the entire category fell 1 percent.
"These are phenomenal numbers," DeHoff said, noting that it wasn't clear why such growth did not translate into even higher sales. Lawless and McCormick said several factors held down fourth-quarter earnings.
The first was a bigger-than-expected restructuring charge of $1.5 million, or 1.3 cents a share, resulting mostly from the discontinuation of production in Venezuela. The company confirmed that it sold its two remaining plants there to two companies this week. A second factor was unexpected pokey performances in Mexico and Japan, Lawless said. In Mexico, competition increased, forcing McCormick to spend more on promotions. In Japan, declining consumer confidence induces consumers to keep their wallets shut.
A third contributor was lower quarterly profit in the company's industrial food and packaging businesses. That problem troubled the company for most of the year: McCormick assigned former Chief Financial Officer Robert G. Davey to head the unit, and turn it around.
Pub Date: 1/15/99