Spice maker elated by 1Q

McCormick expects good earnings year

March 28, 2007|By Allison Connolly | Allison Connolly,Sun reporter

With a record first quarter under its belt, McCormick & Co. Inc. expects to hit the higher end of its earnings forecast for 2007.

Boosted by sales from last year's acquisition of Simply Asia Foods and other ethnic product lines, and a restructuring plan that should wrap up next year, the Sparks-based spice maker hinted yesterday that other acquisitions might be in the offing.

"Should we continue to have strong performance, we will evaluate opportunities to reinvest additional profit in our businesses," said McCormick's chairman and chief executive officer, Robert J. Lawless, during a conference call with analysts yesterday. He added, "We have no new announcements today, but want to assure you that we are actively pursuing a number of brands and businesses that would be a great fit for McCormick."

For the quarter that ended Feb. 28, earnings tripled to $44.2 million, or 33 cents a diluted share, from $14.4 million, or 11 cents a share, for the quarter a year earlier. Analysts polled by Thomson Financial First Call expected earnings of 31 cents a share. Costs related to the restructuring reduced earnings by 4 cents a share, compared with 17 cents for the year-earlier period.

Sales rose 7 percent to $652.6 million from $609.7 million for the year-ago quarter. Favorable foreign currency rates added 3 percent to sales, and efforts to reduce lower-profit business decreased sales 1 percent.

While the first quarter is typically the company's slowest, Lawless said, the results give him confidence the company will achieve the upper range of its earnings goal for the year.

Lawless reaffirmed earnings guidance for the year of $1.67 to $1.71 a share, including restructuring charges of 18 cents per share, and sales growth of between 4 percent and 6 percent. The high end is in line with analyst estimates.

Ann Gilpin, an equity analyst with Morningstar Inc. in Chicago, said the fact that sales grew at both the consumer and industrial divisions, 9 percent and 5 percent respectively, after the company cut less profitable customers and underperforming products, speaks to McCormick's strength.

"It's hard to take the smallest quarter and say it's going to be a great year, but it looks like they're on track to meet their financial goals," said Gilpin, who doesn't own McCormick stock.

Matt Arnold, an analyst with Edward Jones who also does not own McCormick stock, said the $5 billion spice and seasoning industry should see steady growth of 3 percent to 5 percent with rising ethnic populations in the United States and increasing interest in healthy eating.

"Furthermore, we believe the company will be able to overcome its recent setbacks and that the current share price already largely reflects these challenges," Arnold wrote in a report issued yesterday.

McCormick stock closed down 43 cents yesterday at $38.68 a share.

Lawless said the three-year restructuring program is paying off. The program, including 1,000 job cuts and consolidation of several plants, is expected to save the company $50 million annually. Total cost of the program, which is slated to wrap up next year, is expected to be $110 million to $130 million.

McCormick's annual shareholder conference, which usually draws 1,000 people, is scheduled today at the Baltimore Marriott Hunt Valley Inn.

allison.connolly@baltsun.com

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