McCormick's 1st-quarter earnings increased 8.5%

sales rose 18%

Zatarain's flavoring line is profitable addition

March 24, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Strong sales of spices and higher-profit flavorings pushed McCormick & Co. Inc.'s sales and earnings income to record levels in the first quarter, the locally based spice maker said yesterday.

Net income rose 8.5 percent to $38.1 million, or 27 cents per diluted share, in the quarter that ended Feb. 29, from $35.1 million, or 25 cents per diluted share, in the first quarter of last year. The results met expectations of analysts polled by Zack's Investment Research Inc.

Sales shot up 18 percent, to $572 million, driven partly by favorable currency rates and the acquisition last year of Zatarain's, a line of New Orleans-style packaged foods and spices. Higher prices on some products also added to the sales increase. Those products included items containing vanilla beans, which have become more expensive, and higher-profit products such as those in the Zatarain's line.

"We're right where we want to be from an earnings per share standpoint," said Robert J. Lawless, chairman, president and chief executive.

Shares of McCormick closed at $31.57 per share yesterday on the New York Stock Exchange, gaining 57 cents per share. The company, which has its headquarters in Sparks, is holding its annual meeting today at a Hunt Valley hotel.

Much of the sales increase came from McCormick's consumer side; the business of selling spices and other products in stores was up 27 percent. About 10 percent of that increase came from the heavily promoted Zatarain's line. During the quarter, the company increased its advertising spending by $5 million.

"They have realigned their business to focus on consistently higher-margin, consumer-type products," while selling off non-core divisions, such as a plastic packaging business, said Bentley Offutt, an analyst with Offutt Securities in Hunt Valley.

Acquisitions such as Zatarain's have broadened the company's offerings outside of the slower-growth spice products into the faster growth flavorings business, he said.

The consumer business performed especially well in the United States, McCormick said. U.S. sales got a boost from expanded distribution, as the company sold its products for the first time in Dollar Stores and Food Lion supermarkets.

"Our new product launches have been going extremely well," Lawless said. The company is also getting a better dollar volume return on advertising dollars spent, thanks to improvements in promotional programs, he said.

The industrial business - selling to restaurants and food processors - also showed improved results, with sales up 10 percent as the company sold new flavors to existing accounts and as customers promoted products that use McCormick coatings or flavorings. A rebound in business at restaurants that buy McCormick flavorings and spices has also helped the spice maker.

Because of strong first-quarter sales and foreign exchange rates that are favorable for one of Europe's dominant spice suppliers, the company said, it expected the increase in worldwide sales to be in the low double digits. It had earlier estimated that those sales would increase 7 percent to 9 percent this year.

Lawless said the company learned late Friday that it will get an $11 million settlement stemming from 1999 class-action antitrust lawsuits against makers and sellers of flavor enhancers.

McCormick expects to receive the payment by the end of this month, but doesn't know yet how the award will affect earnings this year and hasn't determined what the final amount will be after attorneys' fees, Lawless said.

Dow Jones Newswires contributed to this article.

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