Spice maker boosts profit

One-time charge aside, 2nd quarter exceeds estimates

Food industry

June 17, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

Despite a $14.6 million charge that substantially reduced the bottom line, analysts and company officials were generally happy with the earnings report released yesterday by Sparks-based spice maker McCormick & Co. Inc.

Not including the charge, which was related to last week's announcement that the company will fire 300 workers and close a plant in the United Kingdom, earnings per share for the second quarter were up 27 percent to 28 cents -- beating Wall Street's expectations by about 3 cents. Earnings were 8 cents per share when the charge was included.

Net income was $5.8 million, compared with $16 million in the corresponding period last year. Without the charge, net income would have increased 27.5 percent to $20.4 million. Net sales for the quarter were $468 million, up 7.5 percent over the 1998 period. McCormick closed up 31.25 cents yesterday to $30.25.

"They are really doing very, very well, at the consumer level in the U.S. particularly," said Judy DeHoff, an analyst at Legg Mason Wood Walker in Baltimore. "And the attention to detail made margins improve as well. They're really hitting on all cylinders now."

In January, the company set three goals for the year, said Fran Contino, executive vice president and chief financial officer. Officials wanted to increase sales 5 percent to 7 percent; increase the gross margin by 1 percentage point; and raise earnings per share by about 12 percent to 15 percent. So far, the company is in good shape to meet those goals, Contino said.

Sales were up nearly 8 percent for the quarter and up 7 percent for the first six months of the year. Margins for the quarter were up 1.3 percentage points and up 1 percentage point for the six-month period. Earnings per share for the first half of the year, excluding the charge, were up 20 percent to 53 cents.

"We just experienced one of the greatest quarters in recent history," Contino said. "We're just absolutely pleased with the results, and there is a lot of positive energy flowing through the whole global McCormick organization."

Contino said the company gained $4.8 million in the quarter from a change in the way it estimates expenses for its pension fund. That brought its $19.4 million charge down to $14.6 million, he said. The company will write off another $6.9 million before taxes to pay for the layoffs and plant closing over the next nine months, he said. Most of the job losses will be overseas.

The beauty of McCormick is that it not only benefits from supermarket sales, but its products are found in many restaurant recipes, including McDonald's Big Macs, KFC chicken and Boston Chicken marinades, said Mitchell B. Pinheiro, an analyst at Janney Montgomery Scott Inc. in Philadelphia, who called the earnings "terrific."

Restaurant business is especially important because the spice-and-seasoning category overall is not doing well. In the 12-week period that ended April 25, data compiled from U.S. supermarkets show that McCormick's unit volume -- the number of products sold in supermarkets -- grew 9.5 percent compared with the corresponding period a year earlier, while the entire category grew only 0.4 percent.

"They are not dependent on you or I sitting at home and grabbing the paprika or garlic," Pinheiro said.

He said analysts are more concerned with earnings per share than with net income.

"People are looking at the earnings power of McCormick because in most cases when a company takes restructuring charges they are one-time in nature," Pinheiro said. Closing the United Kingdom plant is "absolutely the right move."

R. Bentley Offutt, an analyst at Offutt Securities in Hunt Valley, agreed.

"It's going on with a lot of companies. They are trying to focus on the most profitable product items and the most profitable manufacturing and distribution facilities," he said. "It's not good for the [fired] employees, but it's a positive thing from the point of view that the company is focusing on return of shareholder assets."

Pub Date: 6/17/99

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