McCormick profits for quarter are bland

Spice maker lowers year's earnings forecast

Share price falls 2% on news

July 01, 2005|By Paul Adams | Paul Adams,SUN STAFF

McCormick & Co. reported yesterday that profits were essentially flat compared with a year ago and lowered its earnings projections for the rest of the year, blaming unfavorable moves in foreign currency rates and slipping sales to its industrial customers.

The Sparks spice maker said net income in the quarter ended May 31 was $42.8 million, or 31 cents per share, compared with $42.9 million, or 30 cents per share, for the year-earlier quarter.

Sales climbed 5 percent to $629 million as a result of new products and the acquisition of Dutch spice maker C.M. van Sillevoldt BV in November.

Investors reacted negatively to the company's forecast that earnings for the year would be in the range of $1.66 to $1.70 per share, down from its earlier estimate of $1.70 to $1.74. The news sent the company's shares down 62 cents, or nearly 2 percent, to close at $32.68 per share yesterday. The company's shares have fallen 15 percent for the year.

The world's largest spice maker has been buffeted in recent quarters by an ill-timed stockpiling of high-priced vanilla beans, accounting errors at its United Kingdom condiment operation and a strengthening dollar that affected sales abroad. Delayed new product launches by some of its industrial customers also has taken a toll.

"We've just completed two of the toughest quarters during my tenure as CEO of McCormick," said Robert J. Lawless, McCormick's chairman, president and chief executive, in a conference call with analysts.

Lawless said some of the factors dragging down earnings recently have been dealt with and won't affect profit for the rest of the year. But the company has lowered its expectations for sales to industrial customers, such as snack makers, which will keep earnings per share from reaching the previous forecast.

Despite the lowered forecast, the company said it expects sales to grow 4 percent and earnings per share to climb 16 percent to 20 percent in the second half of the year.

McCormick still suffered losses in the most recent quarter from its decision in 2003 to buy bulk vanilla beans that had soared in price to $240 per pound. The higher costs eroded the company's profit margin.

The company made personnel changes at its U.K. condiment business as it continued to unravel accounting problems that have resulted in unexpected charges and adjustments. Lawless declined to specify what was discovered in its audits, but he said the problems have been resolved and won't affect earnings going forward.

The accounting problems and vanilla losses were largely offset by cost reductions and product improvements, the company said. McCormick has frozen unnecessary travel and management bonuses as part of recent cost-cutting measures.

Lawless said the company continues to look for acquisitions, which have fueled much of its growth in recent years.

"There seems to be a lot of activity at this point in time in the sectors we're looking at," he said.

The company is in the midst of revamping its packaging and shelf displays for retail stores with the goal of making it easier for customers to find what they are looking for.

"We did this 10 years ago and got a 5 percent lift [in sales] over the first three years," Lawless said. "We're doing it to kind of contemporize the product line."

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