Profit surprises at McCormick

25 percent increase to 35 cents a share in second quarter

Condiments

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

McCormick & Co. Inc. reported a 25 percent increase in earnings per share yesterday that exceeded analysts' estimates by 3 cents.

In the three months that ended May 31, the Sparks-based spice producer had earnings per share of 35 cents, up from the 28 cents reported for the corresponding period last year before special charges. Without the charges, 1999's second-quarter earnings were 8 cents per share.

"McCormick has got to be the fastest-growing packaged-food company through the first half [of the year] in terms of earnings," said Mitchell B. Pinheiro, an analyst at Janney Montgomery Scott LLC who rates the shares a buy.

Net income was $24.2 million, up from $5.8 million. Last year's second quarter included a $14.6 million charge related to the closing of a plant in the United Kingdom and 300 job cuts.

Net sales in the second quarter were up 3.8 percent to $486 million. Gross profit margins improved in the quarter by 140 basis points. During the quarter, the company bought back 740,000 shares.

Industrial sales rose only 1 percent for the quarter, but that was largely as a result of the company's plan to cut low- or no-margin sales and instead focus on value-added, higher-margin goods. Operating profit in that sector rose 15 percent to $22 million.

"We had a plan to decrease sales by $10 million in that part of the business," said Francis A. Contino, executive vice president and chief financial officer. "The good news is that we've been successful, but the real good news is margins are improving."

Sales in the consumer sector grew 6 percent and operating profit was up 9 percent. In the packaging business, sales were up 5 percent and operating profit was up 14 percent.

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 six months, net income rose 102 percent to $48.6 million with net sales up 4 percent to $948 million.

"As we grow sales of branded products, invest in technical innovation and gain efficiency in our processes and asset utilization, McCormick is adding shareholder value," said Robert J. Lawless, chairman, president and chief executive. "We're extremely pleased with our progress through the second quarter."

Pinheiro said McCormick executives have indicated that, even though earnings per share were higher than analysts had expected, estimates for the year - at $1.97, according to Zacks Investment Research - should not be raised. He said McCormick indicated that it wants to invest the additional income in a larger marketing and advertising budget.

McCormick shares rose $1 to $33.5625 yesterday.

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