McCormick lowers its earnings forecasts

Firm notes weak industrial business, projected sales dip in Katrina-hit areas

Changes affect 3Q, fiscal-year expectations

Spice maker plans to take steps to cut manufacturing, administrative costs

September 07, 2005|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Spice maker McCormick & Co. Inc. lowered its earnings forecast yesterday for its third quarter and fiscal year, blaming weakness in its industrial business and anticipated lower sales in hurricane-ravaged areas.

McCormick, owner of Zatarain's, maker of New Orleans-style packaged foods and spices, also said it would take steps to cut manufacturing and administrative costs.

McCormick's industrial business, creating and selling flavorings to food companies, has suffered from volatile demand and increased competition, said Robert J. Lawless, McCormick's chairman, president and chief executive.

"In addition, while we have not fully assessed the effects of Hurricane Katrina, we do expect an impact on fourth-quarter sales in the affected region, particularly for Zatarain's products," Lawless said in a statement released after the close of trading yesterday.

"I am not satisfied with this year's financial performance," Lawless said. "In the past, we have been able to overcome obstacles and drive growth with the strength of our new products as well as cost reductions and expense controls."

Lawless would not comment beyond the statement, pending a conference call with analysts scheduled for today.

McCormick, which will release third-quarter results Sept. 28, lowered its earnings forecast for the three months that ended Aug. 31 and for its fiscal year, which ends Nov. 30. Earnings for the year are projected to be $1.58 per share to $1.62 per share, down from the company's previous projections of $1.66 per share to $1.70 per share. Third-quarter earnings are forecast at 33 cents per share to 35 cents per share.

The manufacturer also announced plans to revamp its supply chain to boost effectiveness and lower costs.

"What I think they're saying is. aside from Katrina, the third-quarter weakness that they're having in the industrial side of their business continues to cause earnings to be flat," compared with a year earlier, said R. Bentley Offutt, an analyst with Baltimore-based Offutt Securities, an institutional research brokerage firm. "On a short-term basis, they have some challenging times."

The Zatarain's division, which McCormick acquired in 2003, has its headquarters outside New Orleans. The company said it could not elaborate on the impact of the hurricane on Zatarain's operations or sales prior to today's conference call.

Lawless said growth this year has been limited by stockpiling of high-priced vanilla beans, weak industrial sales and, now, Hurricane Katrina.

The company has launched a comprehensive review of its industrial business, which had been blamed for essentially flat profits in the second quarter that ended May 31. At that time, the company lowered its earnings projections for the rest of the year, noting weak sales to industrial customers and unfavorable moves in foreign currency rates.

The weakness follows about five years of increased sales and profits on the industrial side, Lawless said.

"However, we are currently in a period of increased volatility, competitive pressures and costs for this business," Lawless said in the statement.

McCormick is taking steps to make its supply chain more efficient, including consolidating global manufacturing, cutting administrative costs and reducing inventory.

Yesterday, the spice maker also announced organizational shifts, naming three new division presidents who will report to Lawless.

Charles T. Langmead, former vice president and general manger of the food service and global restaurant division, will lead the industrial business in the United States and coordinate key global industrial customers as president of McCormick's U.S. industrial group. Mark T. Trimble, former president of the international consumer products group, will be responsible for the consumer and industrial groups outside North America, while Alan D. Wilson, former president of U.S. consumer foods, will head the company's consumer business in the U.S., and the consumer and industrial businesses in Canada.

Shares of McCormick fell $1.64, nearly 5 percent, to $31.57 in after-hours trading from yesterday's close of $33.21 on the New York Stock Exchange.

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