McCormick weathers storm, increases 3rd quarter profits

Modest gain despite hit to New Orleans site


McCormick & Co. Inc. reported yesterday increased sales and earnings for the fiscal third quarter, despite a hit to its operations outside hurricane-battered New Orleans.

The Sparks spice maker said earnings for the quarter that ended Aug. 31 were $48 million, or 35 cents per diluted share, compared with $46.2 million, or 33 cents per diluted share, for the corresponding quarter of last year.

McCormick reported sales of $622.7 million for the quarter, compared with $613.5 million between June and August of last year.

"Results for the third quarter were generally in line with our expectations," said Robert J. Lawless, McCormick's chairman, president and chief executive, in a conference call with analysts.

The earnings fell within a lowered guidance that McCormick released earlier this month, citing a weakness in its industrial business and lower sales expected in areas hit by Hurricane Katrina. McCormick has also been hampered this year by its inventory of high-priced vanilla beans.

McCormick acquired Zatarain's, maker of New Orleans-style packaged foods and spices, in 2003. That division has its headquarters outside New Orleans. Lawless said yesterday that McCormick has accounted for 80 percent of its employees in the gulf region.

While the Zatarain's facility in Gretna, La., is not up and running yet, Lawless said the company is producing Zatarain's products at an off-site location.

The building, which houses 270 employees, sustained wind and water damage.

"The big issue will be longer-term ... how quickly commerce gets back up in those regions," Lawless said.

Shares of McCormick closed at $32 yesterday, up $1 or 3.23 percent.

The company continues to expect previously announced earnings for the fiscal 2005 to be between $1.58 and $1.62 per share. Those numbers include a 2 to 3 cent-per-share hit as a result of Hurricane Katrina.

McCormick expects this year's fourth-quarter earnings to be between 67 and 71 cents per share, compared with 62 cents per share during the fourth quarter of 2004.

R. Bentley Offutt, an analyst who follows McCormick for Offutt Securities in Baltimore and does not own McCormick shares, said the company's consumer business has done reasonably well overall. McCormick's consumer sales were $315.6 million in the third quarter, up from $303.2 million in the third quarter of last year.

"The only real impact that I can see in the third quarter ... was Zatarain's, which they acquired a couple of years ago, and of course Zatarain's plant and also probably their retail sales in the affected hurricane areas," Offutt said. "The question is, what additional impacts will they have in [the fourth quarter]?"

Offutt expects McCormick's numbers to improve next year.

The company attributed its 1.5 percent total sales increase for the quarter to success in the consumer business, increased income from its operations in Mexico and a cost-cutting program being put together, which is expected to unfold later this year.

Lawless said the company is launching new products this year. Several released in the second quarter are having a positive effect on sales. The company also is getting its merchandise on the shelves in a more timely manner and is revamping its dry sauces.

"We're refreshing the whole dry sauce area ... taking out some of the slower-moving items and putting in some of the new items that we're launching in this category," Lawless said.

While Lawless said he was happy with company's U.S. performance, economic conditions were not as strong in Europe. The company's industrial sales fell 8 percent in Europe during the third quarter.

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