Zatarain's perks up McCormick's 3rd-quarter earnings

Continuing operations gain 18%, top forecasts

September 30, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Bolstered by the popularity of its Zatarain's New Orleans-style food products, spice maker McCormick & Co. Inc. reported yesterday 18 percent growth in earnings per share from continuing operations for the third quarter, beating analysts' estimates.

The Sparks-based maker of spices and flavorings for consumers and the food industry said net income from continuing operations rose to $46.2 million, or 33 cents a share, from $40 million, or 28 cents a share, in the fiscal quarter that ended Aug. 31. Analysts had expected 32 cents a share, according to Thomson First Call.

The strong growth prompted the company to maintain its initial earnings goal for this year of $1.51 a share to $1.54 per share.

Including a gain in last year's third quarter from sale of a packaging business, the company's net income dropped nearly 10 percent, from $51.3 million, or 36 cents a share, to $46.2 million, or 33 cents a share.

Shares of McCormick fell 82 cents, or 2.4 percent, closing yesterday at $33.14 on the New York Stock Exchange.

Sales in the quarter jumped 10 percent to $613.5 million, compared with $557.8 million in the third quarter of 2003, thanks to strong U.S. sales of the Zatarain's rice mixes, including the "Ready to Serve" products, spice grinders, Hispanic products and the GrillMates line of blended seasonings and sauces, the company said.

"Essentially, each of their businesses did well," said R. Bentley Offutt, an analyst with Offutt Securities. "The results were even more impressive because of the fact that they've spent a significant amount of money in promotions and advertisements for new products. ... I'm confident they will have a continuation of good earnings into the fourth quarter."

Robert J. Lawless, chairman, president and chief executive officer, said the company's earnings per share have grown at an impressive rate as food manufacturers have struggled with higher costs for raw materials.

"We've been there and are starting to see some small declines and expect further declines over a period of time," in raw material costs, he said in an interview yesterday.

Operating income in the consumer side of the business, in which spices and other products are sold by retailers, grew to $56.8 million from $45.3 million, while sales jumped 12 percent to $303.2 million.

Sales are benefiting from products introduced over the past two years, including those intended to help save consumers' time when preparing meals and from the strong performance of Zatarain's as McCormick has expanded its distribution in the United States and begun selling the line in Canada and the United Kingdom., using McCormick's capacity to bring new products quickly to market, Lawless said.

The Zatarain's acquisition last year continues to pay off, analysts said. Third-quarter sales for that line of products rose a surprising 23 percent as McCormick used its strength in grocery stores to expand the presence of Zatarain's products on retailers' shelves and its advertising muscle to boost recognition of the brand, Offutt said.

On the industrial side of the business, in which flavorings are sold to food processors, operating income grew to $31.2 million, from $27.9 million on a 9 percent increase in sales.

"We had a tremendously strong quarter in our coating side of the business with restaurant customers, and that drove significant growth in sales," Lawless said. McCormick makes coatings used by food processors on fish, chicken and pork.

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