McCormick net rises to $53.3 million

5% price boost offsets higher costs

June 27, 2008|By Andrea K. Walker | Andrea K. Walker,SUN REPORTER

Like most food companies, McCormick & Co. Inc. is paying more for ingredients such as flour and soy oil that go into making its spices and flavorings.

But by raising prices about 5 percent, the Sparks company was able to offset the higher commodities costs to post a record second quarter.

Net income increased $53.3 million, or 41 cents per share, for the quarter that ended May 31. That was compared with $41.4 million, or 31 cents per share, for the quarter a year ago. Excluding restructuring charges and credits, per share earnings were 39 cents, an 11 percent increase over a year earlier and in line with the expectations of analysts surveyed by Thomson.

Shares of McCormick lost 52 cents yesterday on the New York Stock Exchange, closing at $36.52.

"The sales results are evidence that our growth initiatives are resonating with customers and consumers, and our pricing actions and profit performance demonstrate that we are effectively managing through an unprecedented period of rising costs," Alan D. Wilson, president and chief executive, said during a conference call with analysts yesterday.

Revenue grew to $764.1 million, up 11 percent from the second quarter a year ago.

Wilson said sales benefited from favorable exchange rates in other countries. About 40 percent of McCormick's sales are overseas. It was also helped by product mix.

A slowdown in consumer spending at restaurants cut into McCormick's sales. The company also said gross margins were low because of commodity prices.

One analyst said he expects the margins to improve.

"As the year progresses, the trend in terms of margin should improve and head in the right direction," said Matt Arnold, an analyst who follows the food industry for Edward Jones.

McCormick raised its sales expectations for the year, from 5 percent to 7 percent, to what it called a high single-digit. It reaffirmed earnings per share of $1.97 to $2.01 for the year.

The company said it is continuing to see the benefits from a cost restructuring program. McCormick is expecting a $10 million benefit this year from the final stages of the three-year restructuring. The company will consolidate Billy Bee Honey Products, which it bought this year, with a facility it has in Canada.

McCormick is increasing advertising and marketing spending by 10 percent for the year to woo customers in an economic environment when they are spending less.

Wilson said the company doesn't want to raise prices too much and turn off consumers.

"We're very conscious of the price increase on consumers and customers," Wilson said in a phone interview after the analysts call. "We want to make sure we stay competitive."

McCormick also said it was still working to close a $605 million deal announced in November to buy Lawry's and Adolph's brand seasonings and marinades from Unilever PLC. The deal is still going through the regulatory process with the Federal Trade Commission.

"It's big enough of an acquisition that there is concern over the size of the market share they'll have in the seasoning and spices industry," Arnold said.

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