McCormick & Co. Inc. reported yesterday a 19 percent increase in second-quarter net income, capping a busy six-month period during which it acquired two companies and agreed to sell its packaging division to focus on its spices and food flavorings business.
Analysts said the recent moves have streamlined the Sparks-based company's operations and positioned it for growth in its core food-industry markets.
With the sale of the packaging business, the smallest of McCormick's three divisions, investors will "see a company that's gone toward a pure food company," said George Askew, a senior analyst in the Alexandria, Va., office of Baltimore-based Legg Mason Wood Walker Inc.
"Margins are going to be better going forward, and it's going to be a more consistent earnings story because you won't have the volatility of the packaging business," Askew said.
McCormick continues to prowl for additional acquisitions that will complement its two remaining divisions - consumer and industrial, company officials said. Its consumer division supplies spices and seasonings for sale on supermarket shelves, and the industrial segment sells spices and flavorings to food processors, restaurant chains, food service distributors and warehouse clubs.
But the company is selective when it comes to acquisitions, analysts said, and it will continue to drive sales growth through product development and expanded distribution in international markets.
In January, McCormick acquired UNIQsauces, a British condiment maker, for $19.5 million in cash. This month, it completed the acquisition of Zatarain's, a New Orleans-style packaged food and spice maker, for $180 million. On Thursday, McCormick said it was selling its packaging division for $142.5 million.
"What is our core competency? It is providing flavor for food and beverage," Robert J. Lawless, McCormick's chairman, president and chief executive officer, said yesterday in an interview. "We can concentrate all our resources now on growing the food business."
Lawless declined to say if any more acquisitions were planned for the rest of this year. He said McCormick shouldn't be viewed as a company that can grow only through acquisitions. New product development and wider distribution in growing markets, such as China, are driving the company's growth, he said.
Mitchell B. Pinheiro, an equity analyst with Janney Montgomery Scott LLC in Philadelphia, said McCormick is "very selective and disciplined" with its acquisitions.
"I would call them opportunistic," he said. "Acquisitions will be looked at when available. ... They don't need it to grow."
McCormick's net income increase in the quarter was fueled by higher sales and gross profit margin, and a one-time $5 million interest income gain from a purchase price adjustment related to the acquisition three years ago of Ducros, a European competitor.
Net income rose 19 percent to $40 million, or 28 cents per diluted share, for the quarter that ended May 31, compared with $33.6 million, or 24 cents earnings per share, in the corresponding quarter last year.
Sales climbed 7.9 percent to $596.1 million from $552.6 million.
Excluding the one-time gain, the Sparks-based company met Wall Street analysts' consensus estimate of 26 cents for the quarter, according to Thomson First Call.
Sales in McCormick's consumer segment last quarter rose 10.4 percent to $271.8 million. Sales in its industrial segment climbed 7.4 percent to $280.1 million. Sales in the packaging division, which is being sold to the Kerr Group Inc., a Pennsylvania packaging company, declined 2.8 percent to $44.2 million. Packaging accounted for 7 percent of McCormick's $2.3 billion in sales last year.
McCormick expects total full-year sales to rise 8 percent to 10 percent and earnings a share to increase 10 percent to 12 percent.
Shares of McCormick rose 99 cents to close yesterday at $27.40 on the New York Stock Exchange.