McCormick firings hit hardest abroad

Plant closings set

fewer than 15 jobs being lost in Sparks

June 08, 1999|By William Patalon III | William Patalon III,SUN STAFF

McCormick & Co. Inc. will fire about 300 workers -- mostly overseas -- and close some European plants to free up money for such growth-boosting initiatives as new products and increased marketing, the Sparks-based spice company said yesterday.

Although the firings represent about 4 percent of its worldwide work force, fewer than 15 local workers will lose their jobs, the company said. Once completed over the next eight or nine months, the job cuts and plant closings will generate about $6 million annually that the company can deploy however needed to generate higher sales, the company said.

"This will drive the business going forward," said Robert J. Lawless, McCormick's chairman, president and chief executive officer.

McCormick needs to streamline its international business, which accounts for about one-third of its sales but only 10 percent of its profit, said Prudential Securities analyst John McMillin.

"They have struggled to improve their international profitability," he said.

Even though the cost-cutting won't immediately boost profit -- the company "will be able to earn a lot more in the future," McMillin said.

On Wall Street yesterday, shares of McCormick slid 6.25 cents to $30.625.

Company officials declined to detail which plants would be closed or which workers would lose jobs, though they did say McCormick would shut down one of its three liquid-products plants in the United Kingdom.

The company said it would take after-tax charges totaling $25 million during the next four quarters to pay for the firings, plant closings and divestitures, and other write-offs. It will take most of that charge in the second quarter, which ended in May.

Also yesterday, the company said it is changing how it estimates expenses for its $140 million pension fund, a move resulting in a one-time, after-tax gain of $5 million for the second quarter.

While Lawless said business is strong, the charges will trim second-quarter earnings by $15 million, or 20 cents per share -- even with the $5 million gain, the company said.

With the charges expected later this year, 1999 profit will be lower by 27 cents per share, the company said.

McCormick will report its second-quarter sales and profit a week from tomorrow.

In recent years, the company has increased its marketing, particularly when it comes to advertising, spending an average of $20 million annually over the past three years. Much of that advertising has been designed to bolster brand awareness with consumers -- the focus of the current "Flavor it up with McCormick" campaign. Though advertising is only one potential beneficiary of the $6 million in anticipated yearly savings, there should be enough extra money to further buttress McCormick's ad budget, company officials said.

For products such as spices, which might otherwise be viewed as a commodity, McCormick's strong brand name lets the company charge a premium over rival products. That is why it is crucial that the company continue to "invest" in its brand through advertising, one marketing expert said.

Consumers "see something valuable in the brand name," said Eugene Fram, the J. Warren McClure marketing research professor at the Rochester Institute of Technology College of Business. "Take Morton salt. Table salt is table salt. But through its `When it rains, it pours' campaign, [Morton] has through the years built up its brand so that customers perceive a difference."

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