Thursday, specialty food company McCormick & Co. Inc. (MKC) reported a 9.5% rise in third-quarter profit, driven by Lawry's acquisition, and pricing actions taken to offset higher costs, despite unfavorable foreign currency exchange rates. Quarterly earnings per share topped market projections, while sales missed Wall Street view. Further, the Sparks, Maryland-based maker of spices, seasonings, flavorings and specialty foods narrowed its fiscal 2009 earnings forecast, and added that it is positioned for further increases in sales and profits heading into the holiday season.
Third-quarter net income was $75.1 million or $0.57 per share, compared to $68.6 million or $0.52 per share in the same quarter of last year.
The latest quarter results included restructuring charges of $0.7 million or $0.00 per share, while prior year results included charges of $2.4 million or $0.02 per share, mainly related to the Lawry's acquisition.
Excluding items, adjusted net income for the quarter was $75.8 million, compared to $65.5 million in the year ago quarter. On a comparable basis, adjusted earnings per share rose 14% to $0.57 from $0.50 last year.
On average, nine analysts surveyed by Thomson Reuters expected the company to report earnings of $0.54 per share for the quarter. Analysts' estimates typically exclude special items.
Net income from consolidated operations for the quarter grew to $72.0 million from last year's $63.3 million.
Third-quarter net sales edged up 1% to $791.7 million from $781.6 million in the prior year with increases in both the consumer and industrial businesses, but came in below seven Wall Street analysts' consensus revenue estimate of $801.36 million. Unfavorable foreign currency exchange rates reduced quarterly sales by 5%. In local currency, sales for the period grew 6%.
Segment-wise, consumer business sales rose 2% year-over-year to $450.5 million, and the growth was 6% in local currency. The company attributed the segmental sales growth to Lawry's acquisition in late July 2008, pricing actions taken early in 2009 to offset higher costs that added 3% to sales, and a relaunch of dry seasoning mixes in the U.S. Volume and mix increased 3%, due in large part to sales in the Americas.
Consumer sales in the Americas rose 8% and in local currency grew 9%, with 6% growth in volume and product mix. Higher sales of branded dry seasoning mixes and grilling products were offset by lower sales of gourmet and specialty food items, the company said. In Europe, Middle East and Africa or EMEA, quarterly sales fell 13% and the decline was 3% in local currency, as the difficult economy led to a reduction of 4% in volume and product mix with particular weakness in the U.K, partly offset by pricing actions. Consumer sales in the Asia/Pacific region declined 4%, but rose 5% in local currency driven by increases in both primary markets, China and Australia.
In the Industrial business segment, sales rose 1% in the third quarter to $341.2 million, and in local currency grew 7%, driven by 3% rise in volume and product mix, and pricing actions added 4% to sales. Industrial sales in the Americas rose 4% on a reported basis, and 7% in local currency, helped by higher volume and product mix that increased sales by 4% with 1% of the increase due to the Lawry's acquisition. In EMEA, industrial sales declined 10% but increased 8% in local currency, and in the Asia/Pacific region, sales increased 1%, and the growth was 6% in local currency, largely due to greater demand from quick service restaurants in this region.
Total gross profit for the quarter rose to $319.0 million from prior year's $308.4 million, and gross profit margin improved to 40.3% from last year's 39.5%. The company said it is improving profitability with savings from its on-going Comprehensive Continuous Improvement, or CCI, program, along with other areas of cost reduction in 2009.
Operating income rose to $116.6 million from $92.9 million a year ago, and operating income on a comparable basis, excluding restructuring charges, reached $117.5 million, up 22% from the previous year.
Commenting on the results, Alan Wilson, Chairman, President and Chief Executive Officer, stated, "McCormick achieved strong profit growth in the third quarter. We grew sales for both our consumer and industrial businesses with the addition of Lawry's, great product innovation, and pricing actions taken earlier in 2009 to offset higher costs. These increased sales, together with CCI, our restructuring program and other cost reductions, led to a profit increase that was ahead of our expectations for the quarter. With more consumers preparing meals at home, we are seeing a strong return on our marketing dollars and have plans for further increases to drive sales of our leading brands."
In its preceding second quarter, McCormick posted a 5% decline in profit to $50.7 million or $0.38 per share, hurt by restructuring charges and a 1% drop in quarterly sales, despite a 90 basis points improvement in gross margins. Excluding the restructuring charges, adjusted net income for the quarter advanced to $55.4 million or $0.42 per share. Net sales edged down to $757.3 million as unfavorable foreign currency exchange rates reduced sales 8%, while total sales rose 7% in local currency.
Among others in the industry, New York-based International Flavors & Fragrances Inc.(IFF), a manufacturer of fragrance and flavor products, on August 5 reported that its second-quarter net income dropped to $48.08 million or $0.60 per share from $67.03 million or $0.83 per share in the previous year. Excluding certain items, earnings were $0.65 a share, compared to $0.81 a share in the year-ago period. Net sales for the period decreased 11% to $568.26 million, and the drop was 4% on a constant currency basis.
For the nine months ended August 31, McCormick's net income rose to $183.5 million or $1.39 per share from $173.4 million or $1.32 per share a year ago. Adjusted net income was $189.2 million or $1.43 per share, higher than last year's $170.8 million or $1.30 per share. Nine-month net sales, meanwhile, edged down to $2.268 billion from $2.270 billion in the previous year.
Further, McCormick narrowed its 2009 earnings per share projection, based on strong year-to-date profit performance and a positive outlook for the upcoming holiday season, to $2.26 to $2.28, which includes $0.05 of restructuring charges, from previous projection of $2.24 to $2.28. The revised range is an increase of 8% to 9% from last year, on a comparable basis, excluding the impact of restructuring charges and unusual items. Meanwhile, the company reaffirmed its expectation to grow sales by 2% to 3% and continues to project a gross profit margin increase of at least 0.5 percentage points for the fiscal year.
Analysts expect the company to report earnings of $2.31 per share for fiscal 2009 with estimates ranging between $2.28 and $2.34 per share, on revenues of $3.24 billion that represents a 1.9% rise from last year.
Cost savings from CCI and other initiatives to reduce costs are now expected to reach $35 million and are providing the fuel for at least $20 million of additional marketing support, including an incremental portion related to Lawry's, the company said.
Wilson added, "As we head into the holiday season, we believe McCormick is positioned for further increases in sales and profits. Our employees are focused on driving sales and managing costs, and we are confident that 2009 will be another year of record financial results."
On Tuesday, McCormick said its Board of Directors declared a quarterly dividend of $0.24 per share on its common stocks payable October 16, 2009, to shareholders of record on October 2, 2009. The dividend is the 85th year of consecutive dividend payments by the company.
MKC closed Wednesday's regular trading session at $34.75, up $0.58 or 1.70%, on a volume of 995,916 shares. The company's shares have been trading in a range of $28.08 - $39.64 in the past 52 weeks, with a 3-month average volume of 728,329 shares.
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