Record period at spice giant

McCormick earnings up 40 percent from year-earlier quarter

`Well above expectations'

Food industry

March 15, 2000|By Kristine Henry | Kristine Henry,SUN STAFF

McCormick & Co. Inc. reported record first-quarter earnings yesterday, driven largely by a focus on sales of value-added products.

The Sparks-based spice producer beat analysts' estimates by 7 cents with earnings per share of 35 cents, up 40 percent from the year-earlier quarter.

For the three months that ended Feb. 29, the company had net income of $24 million, up 33 percent. Sales rose nearly 5 percent to $462.4 million.

"They came in well above expectations," said Kurt Funderburg, an equity analyst at Ferris Baker Watts in Baltimore. "They had an extremely strong quarter with pretty solid strength across all three of their businesses."

Sales were up 6 percent in the consumer business, up 3 percent in the industrial business and up 7 percent in the packaging business.

"It was a combination of a focus on process improvements, cost cutting, more efficiencies and streamlining," Chief Financial Officer Fran Contino said of the results. "And we're selling things to customers with greater gross margin returns."

Company officials have set three goals for 2000: sales increases of 4 percent to 6 percent; gross margin improvements of 70 to 100 basis points; and earnings per share growth of 11 percent to 14 percent.

"In the first quarter, our sales increased 4.7 percent, gross margin was a 250 basis-point improvement and EPS growth was 40 percent," Contino said. "Let's just say we're off to a good start."

He said the company focused on sales of value-added products, especially in its industrial business. "If you take raw ingredients and blend them and sell big bags of them, that's a relatively low-marking business," Contino said. "If you add technology and create a compound flavor that is added to food or beverages, the margins are higher." Despite the increased earnings, Wall Street isn't reacting the way company officials would like.

McCormick's shares gained 50 cents yesterday to close at $26.1875. The company's shares had been above $34 in October.

"Investors seem to not want to have anything to do with food companies," said David C. Nelson, a director at Credit Suisse First Boston who follows the company. "The company is doing a good job across the board -- and it's really too bad they're not getting recognized."

Nelson noted that the Standard & Poor's food index was down 24 percent last year and is down 22 percent so far this year.

McCormick is "one of the very few stocks I recommend in the sector," he said. "What the company needs to do is keep doing what it's been doing, and someday the market will recognize its superior performance."

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