Weak dollar helps raise McCormick profit 32%

No. 1 spice maker's sales increase 8% with 2% of that tied to exchange rates

September 28, 2007|By Laura Smitherman | Laura Smitherman,SUN REPORTER

Spice maker McCormick & Co., which has been buffeted by rising commodity prices, reported yesterday that fiscal third-quarter profit rose 32 percent as the local company benefited from a weak dollar that helped boost sales overseas.

McCormick had net income of $57 million, or 43 cents per share, in the three months through August, compared with $43 million, or 32 cents a share, in the comparable quarter last year.

Sales rose 8 percent, with 2 percent of that increase attributed to favorable currency exchange rates. Sales increased 12 percent in Europe, and 21 percent in the Asia/Pacific region.

Many multinational companies are expected to see gains from the dollar's plunge, which has fallen this year and recently hit an all-time low of $1.40 against the euro.

For McCormick, which sells seasonings, sauces and marinades, the currency advantage has helped to offset soaring prices of raw materials such as flour, soybeans, cheese, wheat and pepper.

Robert J. Lawless, McCormick's chairman and chief executive officer, said commodity costs nicked the profit margin because the company won't be able to pass on the higher prices until next quarter to industrial customers such as food manufacturers and quick-service restaurants.

Lawless said the consumer business was not hurt as drastically by commodity prices but has seen an increase in packaging costs. "Our business is not without challenges," Lawless said. "Our industrial business is in a period right now where it is under pressure with steep increases for several commodities and a general weakness in the restaurant industry. We have been able to offset these head winds."

Besides the help it received from currency markets, McCormick made early shipments to retailers that accounted for roughly $10 million in sales during the quarter in a gambit to better capitalize on the holiday season, which already ranks as McCormick's busiest.

While the move is expected to lower fourth-quarter sales, Lawless said he hopes it will boost overall sales for the year because customers typically buy more if the promotional displays are up earlier.

He also emphasized in a conference call with analysts that the company is on track to achieve projected cost savings of $50 million a year from a restructuring program that's expected to be completed next year.

And Lawless noted that the company could gain market share because of its food safety program.

The issue has become a hot button for many consumers with recent scandals involving contaminated spinach and seafood. He said that the company's imports from overseas are tested at the departure point and re-tested when they enter the United States, and that the program is highlighted in marketing, especially to industrial customers.

McCormick. which has its headquarters in Sparks, reaffirmed its earnings guidance for the year, saying it expects to earn as much as $1.73 per share.

Jonathan P. Feeney, an analyst with Wachovia Capital Markets, said the most recent quarter was "in line" with expectations and that "the numbers look very easy to make for the fourth quarter."

McCormick's shares, which have slipped 3 percent this year, fell 79 cents to $37.25 yesterday.

The company has taken advantage of recent price drops to buy back stock at the rate of $147 million for the year, including $89 million in the third quarter.

laura.smitherman@baltsun.com

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