McCormick reports a lackluster quarter

Strong finish for year expected on rising sales

`No apologies,' CEO says

September 26, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

McCormick & Co. Inc. cautioned earlier in the year that its fiscal third-quarter earnings would be lower than analysts were predicting, and yesterday the spice maker released numbers backing up that warning. Still, the company said it expects to set an earnings record for the year overall.

The Sparks-based company said yesterday that poor performance by a brokerage it owns in England and higher operational costs hurt the quarter's results.

For the three months that ended Aug. 31, the company reported earnings of 25 cents a share, a penny more than in the corresponding period last year. Excluding goodwill amortization, earnings would have been 27 cents a share in last year's quarter, and the past quarter's figure would remain 25 cents.

In the spring, analysts expected the company to earn 29 cents a share in the third quarter. They revised their estimates to the 25 cents McCormick said it would probably earn.

Net income in the quarter was $35 million, up 2.5 percent from the $34 million in the year-ago quarter. Sales were up nearly 2 percent, from $535.9 million to $545 million.

Sales were up 2 percent to $233 million in the consumer business, up 2 percent to $267 million in the industrial business and down 4 percent to $44 million in the packaging business.

"McCormick has had some great quarters over the past five years, but this was not one of them," said John McMillin, an analyst at Prudential Securities. "I don't think they are way off track, but there are some issues, such as the brokerage business and the packaging issue. Like a lot of companies, they are getting nicked."

Robert J. Lawless, chairman, president and chief executive, said the company expects a strong fourth quarter and is on track to meet its goal for the year of sales growth of 4 percent to 6 percent, gross profit margin gains of 0.50 to 0.75 percentage points and a rise in earnings per share of 9 percent to 11 percent.

"Our food business continues to perform extremely well, both on the industrial and consumer side," Lawless said. "There are no apologies. I think we are performing exactly where we need to be."

Earnings were off in the quarter because retailers bought more earlier in the year to beat a June price increase, because of costs associated with a new supply-chain management system and because of customer-service problems at a brokerage in the United Kingdom.

McCormick had contracted out the customer-service function but moved it back in-house after the problems were reported.

Mitchell B. Pinheiro, an analyst at Janney Montgomery Scott LLC, said the quarter came in largely as expected and that the fourth quarter is likely to be strong.

"In the bigger picture, when you look at McCormick in the food group and in the overall market, it's hard to find a better-performing company over the last several years," he said.

McCormick shares gained 24 cents yesterday to close at $22.84 on the New York Stock Exchange.

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