McCormick plans job cuts worldwide over three years

Spice maker coping with drop in demand, hurricane damage, rivals' gains in Europe

December 01, 2005|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

McCormick & Co. Inc. will cut an unspecified number of jobs across its global spice operation, consolidate manufacturing facilities, revamp its struggling industrial business and cut administrative costs as part of a plan to rebound from a disappointing year.

The world's largest spice maker is expected to take charges of $130 million to $150 million against earnings, with about 60 percent coming from severance and other personnel costs. The cuts will be phased over three years and are expected to save $50 million annually beginning in 2008.

McCormick executives had outlined the plan in September, but more details didn't emerge until the Sparks-based company disclosed them in a filing with the Securities and Exchange Commission late Tuesday.

The moves reflect McCormick's difficulties in maintaining growth in the face of global competition and spotty demand. Investors hammered the company's shares after it reduced its earnings projections for the quarter and full year in September. The shares closed down 11 cents to $31.22 in trading yesterday.

"From our perspective, we are following through with what we said we would do in September, and it's going to take a while to implement the various steps," said Mac Barrett, a McCormick spokesman. Barrett could not provide details about where the job cuts would occur, except to say that they would span the company's global operations.

The company's industrial business - selling spices and flavorings to food manufacturers - lagged as key customers delayed introducing new products. It was hurt this year by large inventories of high-cost vanilla beans.

Demand is down in the United Kingdom and France, where discount spice marketers are capturing an increasing share of the market.

The company also lost sales after Hurricane Katrina, which damaged operations at its Zatarain's division outside New Orleans and dampened demand for the division's Cajun flavorings.

The company is taking steps to make its supply chain more efficient, in part by reorganizing its distribution systems. The reorganization also calls for eliminating redundancies in administration, reducing inventory and cutting the number of items it sells through retailers, to eliminate lower-margin products.

Most of the plan's cost will be incurred in 2006, with lesser charges this year and in 2007 and 2008.

Some analysts credit management for being aggressive, but see few prospects for improvement in growth over the next one to two years.

The news is particularly bad in Europe, where the spice maker is struggling to gain traction in a sluggish economic environment. Much of the restructuring will probably occur overseas as the company reduces capacity to meet slack demand, analysts said.

"They have already taken out a lot of capacity in the U.S. and Europe, but if there's any area where they could see additional options, it would be in Europe," said Alton Stump, an analyst with Longbow Research in Cleveland. The firm does not own McCormick shares or do business with the company.

Discounters have about 5 percent of the market in France, but up to 40 percent in the rest of Europe, Stump said.

The trends suggest discounters will increase their share in France at McCormick's expense, Stump said.

"With their current business, I don't see any positive news drivers for the next year or two," he said.

paul.adams@baltsun.com

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