McCormick posts profit increase, but loses $5M due to recall

March 25, 2010|By Andrea K. Walker |

McCormick & Co. spent extra money on advertising and promotion in the first quarter, using coupons and recipes to entice consumers, who have been cooking at home more often because of the weak economy, to buy their spices and condiments.

The strategy paid off as consumers spent a little more to buy the company's brand name products and less on cheaper, private-label brands that had been selling well during this recession.

That helped the Sparks company's earnings rise during the first quarter ended Feb. 28. It reported net income of $67.9 million, or 51 cents per share, compared to $57.7 million, or 44 cents per share, in same period a year ago. Analysts were expecting earnings of 48 cents per share in the latest quarter, according to Thomson Reuters.

But the company also said it lost $5 million because of a product recall. McCormick recalled several products earlier this month because of possible salmonella contamination. The products recalled included French onion dip mix, vegetable dip, onion gravy and corn bread stuffing that contained the flavor enhancer hydrolyzed vegetable protein.

The recall, which affected dozens of products from a variety of manufacturers, stemmed from a problem with hydrolyzed vegetable protein manufactured by Basic Food Flavors of Las Vegas.

McCormick doesn't expect the recall to hurt second-quarter profits, and no one became ill from the products.

"This was a very broad recall across the whole food industry," Alan D. Wilson, McCormick chairman and chief executive, said in a telephone interview. "We didn't want to take any chances, but no one reported any illnesses from this incident. There was a potential for there to be an issue, and we didn't want to create any problems."

The company spent $8 million, a 28 percent increase from last year, on advertising and promotion. Volumes of its McCormick brand spices and Zatarain's line increased 10 percent each as a result. Sales were $764.5 million for the quarter.

But as people continued to eat out less, McCormick's industrial businesses suffered because of weakness in the restaurant industry.

The company will continue to increase ad spending but doesn't think it will have the same earnings effect in the second quarter. Promotions will focus on new products, instead of old favorites, which take longer to show up in sales, Wilson said.

McCormick expects a second-quarter earnings per share in the range of 42 cents to 45 cents compared to last year. For the year, the company said it still expects an earnings per share in the range of $2.49 to $2.54.

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