Profit from spices is sweet

McCormick posts 10% gain in earnings

net sales are up 15%

September 20, 2001|By Kristine Henry | Kristine Henry,SUN STAFF

Cost-savings initiatives and a focus on selling higher-margin products drove McCormick & Co. Inc.'s profit up nearly 10 percent in the third quarter, the spice maker said yesterday.

Net income was $34.3 million, up from $31.3 million in the year-ago period. Net sales were $570.7 million, a gain of 15 percent, from $495.9 million.

Earnings per share were in line with analysts' expectations at 49 cents versus 45 cents in the year-ago period.

"I think McCormick is just firing on all engines from a sales, profit improvement and growth standpoint," said Francis A. Contino, executive vice president and chief financial officer.

"Like everyone else in the country, I really felt like I had the air pumped out of me last week and I have a tough time getting excited today, but we couldn't be more delighted with the results."

He said the Sparks company, the world's largest producer of spices, is not likely to be affected by last week's terrorist attacks on the United States or by retaliatory strikes.

"To just sit back and say we're immune would be a bit naive on our part," Contino said. "We're being cautiously optimistic, and we've got everything going for us in the right direction."

He said the company does not rely for its raw materials on any of the countries likely to be directly embroiled in any future conflict - such as Afghanistan or Pakistan.

Orders from restaurants might slow a bit, he said, if people stop flying and in turn stop staying in hotels and dining out.

"But the good news for us is we cover so many fronts," he said. "If they're eating at home, then they are probably going to the grocery store and buying our products."

Sales in the consumer business rose 30 percent in the quarter to $262 million, industrial sales were up 10 percent to $263 million and sales in packaging were up 9 percent to $46 million.

Gross profit margin rose 520 basis points to 40.1 percent, up from 34.9 percent a year ago.

Ann H. Gurkin, an analyst at Davenport & Co. LLC in Richmond, Va., said that the quarter was "solid" and noted that the gross margin profit was 160 basis points higher than her firm was expecting.

"Gross margin was particularly good because of improved product mix, improved cost-containment efforts and improved procurement costs," she said.

McCormick has been able to sell more high-margin products largely because of its acquisition of Ducros, Europe's largest spice producer, in August 2000. The addition of the Parisian company widened McCormick's consumer line, which has higher margins than the other divisions.

Additionally, McCormick has been saving costs companywide with initiatives such as reducing its number of suppliers and using the resulting leverage to pay lower prices.

Shares of McCormick, which had risen nearly 57 percent to more than $45 in the 52 weeks preceding the terrorist attacks, yesterday fell $2.48 to close at $40.72. "The whole market is off," said Gurkin.

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