Spice maker cutting HQ staff

McCormick plans buyout of unknown number

profit falls 60% in fiscal 1Q

March 22, 2006|By ALLISON CONNOLLY | ALLISON CONNOLLY,SUN REPORTER

Work force reductions are hitting home at McCormick & Co. Inc.

The world's largest spice maker is offering employees at its Sparks headquarters voluntary buyouts as part of an continuing restructuring plan to shrink its worldwide work force by up to 1,000, Robert J. Lawless, McCormick chairman, president and chief executive, said yesterday.

Lawless declined to say how many of McCormick's 175 headquarters employees are eligible for the buyout packages or how many jobs the company is targeting locally, but he said the separations should be completed by the end of the third quarter.

In addition, some sales as well as technical jobs in Hunt Valley will be lost as the company rolls out a new computer system, he said.

McCormick employs 2,300 in Maryland, including production and distribution workers, and 8,000 worldwide.

Lawless' comments came in an interview after the company, which has been struggling to rebound from a difficult year, announced better-than-expected fiscal first-quarter results, thanks to cost-savings measures and better margins on vanilla beans.

While profits were dragged down by restructuring costs and new rules that require the company to expense stock options, Lawless said yesterday, the belt-tightening plan announced last fall is paying off. Excluding those charges, McCormick beat the estimates of a consensus of analysts by 3 cents a share.

"It's fulfilling for our team here that what we said in 2005 ... is bearing fruit," Lawless said in a conference call with analysts.

For the three months that ended Feb. 28, the company reported that net income fell 60 percent to $14.4 million on revenue of $609.7 million.

That compares with net income of $36 million on revenue of $603.6 million in the fiscal first quarter last year. Earnings per share were 11 cents, down from 26 cents for the quarter last year.

Restructuring charges were $33 million, or 17 cents a share, while stock-based compensation expenses, which the company did not have to report last year, reduced profit by $9 million, or 4 cents a share.

If it weren't for those charges, McCormick would have reported earnings of 27 cents a share, Lawless said, beating the 24 cents a share that a Thomson Financial survey of analysts had predicted. Improved sales and profit margins added 6 cents a share to first-quarter earnings.

The company is turning a corner and last year's challenges appear to be behind it, analyst George I. Askew, of Stifel, Nicolaus & Co. Inc. of Baltimore, wrote in a report after yesterday's conference call.

"Investors are regaining confidence in McCormick's business franchise and management team, and the shares will reflect the rebounding performance and credibility," Askew said.

The company is in the midst of its restructuring plan, which it expects to save $50 million by 2008, including $10 million this year.

Over the past two months, the company announced the closings of four manufacturing plants - two in the United States, one in Belgium and one in Sydney, Australia. Lawless said yesterday that McCormick also will close a small plant in Finland, but unlike the other closures, production will not be transferred to other plants.

In addition, the company plans to reduce its base of smaller customers - those with orders of $25,000 or less a year - by 25 percent.

McCormick also is recovering from a bad bet on vanilla prices that had pinched its earnings in the first fiscal quarter in 2005. The company had stockpiled beans in 2003, anticipating soaring vanilla prices would rise even higher. Instead they fell.

Now vanilla prices have normalized, contributing nearly half the 1.5 percent gross profit margin reported in the first quarter, McCormick Chief Financial Officer Francis A. Contino said yesterday.

To boost consumer sales, the company spent $3 million on getting better positions for its products on store shelves in the United States. In Europe, the company pumped more money into advertising, which accounted for improved sales of its Ducros brand in France.

To continue that momentum, the company will unveil new labels and flip-top caps in the second and third quarters, and will also introduce new products such as finishing sauces and ready-to-serve rice.

Lawless said the company's Zatarain's line of New Orleans-style packaged foods and spices has been well received by distributors across the country, though sales in its home base of Louisiana have yet to recover from Hurricane Katrina.

Analyst R. Bentley Offutt said first-quarter results and the overall tenor of the conference call was better than he expected.

"I was impressed by the feeling that the company had made significant progress in implementing the strategy to not only consolidate its facilities in the next year but also improving their packaging of consumer products," said Offutt, who does not own any shares in McCormick and follows it for the institutional research firm Offutt Securities Inc. in Cockeysville. "It's not going to be a bad year after all."

For 2006, Lawless issued earnings guidance of $1.21 to $1.24 a share, which includes charges of 42 cents a share that are related to the restructuring and stock-based compensation.

allison.connolloy@baltsun.com

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