Specialty food company McCormick & Co., Inc. (MKC) Thursday posted a 5% year-over-year decline in profit for the second quarter, hurt by restructuring charges and a 1% drop in quarterly sales, despite a 90 basis points improvement in gross margins. However, adjusted earnings per share for the quarter grew 8%, and topped analysts' expectations by a penny. The company also reaffirmed fiscal 2009 earnings and revenue growth forecast.
In a statement, chairman, president and chief executive officer, Alan Wilson said, "McCormick continues to achieve solid financial results in a tough economy. Sales growth for our U.S. consumer business was particularly strong this quarter as a result of effective marketing support, the addition of Lawry's and continued consumer interest in our leading brands. This more favorable business mix, together with CCI, our restructuring program and other cost reductions, led to profit and margin increases that were right in line with our 2009 objectives."
Second Quarter Results
The Sparks, Maryland-based company reported net income of $50.7 million or $0.38 per share for the second quarter, lower than $53.3 million or $0.41 per share in the prior-year quarter.
The results for the latest quarter included $4.7 million or $0.04 per share of restructuring charges, while the year-ago quarter included $2.1 million or $0.02 per share of restructuring credits.
Excluding the restructuring charges, adjusted net income for the quarter advanced to $55.4 million or $0.42 per share from $51.2 million or $0.39 per share in the year-ago quarter.
On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter edged down 1% to $757.3 million from $764.1 million in the same quarter last year, and fell short of seven Wall Street analysts' consensus estimate of $781.28 million. Sales rose 7% in local currency. Unfavorable foreign currency exchange rates reduced sales 8%.
Among McCormick's peers, New York-based International Flavors & Fragrances, Inc. (IFF) posted in April a 16% year-over-year decline in the profit for the first quarter to $47.2 million or $0.60 per share, on lower sales amid the weak economic environment and the stronger U.S. dollar. Quarterly net sales decreased 6% to $559.63 million from last year, impacted by about $27 million due to the stronger U.S. dollar. The synthetic products manufacturer warned that it expects economic challenges to remain for several more quarters.
Segmental Details
McCormick's consumer business sales for the second quarter advanced 4% over last year to $435.1 million and increased 19% in local currency, primarily driven by 13% of additional sales from the Lawry's acquisition. Adjusted operating income rose 28%, driven by higher sales and cost reductions as well as a favorable business mix. Consumer sales in the Americas rose 16% or 19% in local currency, boosted by higher sales of dry seasoning mixes, grilling items as well as Easter-related spices and seasonings. Consumer sales in Europe, Middle East and Africa or EMEA region declined 21% or 3% in local currency, and Asia/Pacific region sales decreased 6% or rose 8% in local currency.
For the industrial business, sales decreased 7% or grew 3% in local currency, from the year-ago quarter to $322.2 million. Industrial sales in the Americas edged up 1% or grew 4% in local currency, while EMEA industrial sales dropped 28% or decreased 3% in local currency, and sales in Asia/Pacific region were down 15% or 6% in local currency.
Other Metrics
Operating income for the second quarter rose to $82.5 million from $80.5 million in the prior-year quarter. Gross profit for the quarter was $302.2 million, up from $297.9 million in the year-ago quarter, while gross margin percentage grew 90 basis points to 39.9% from the year-ago quarter's 39.0%.
The company noted that it is improving gross margins and profitability with savings from its Comprehensive Continuous Improvement or CCI program and other actions taken to reduce costs.
The company ended the second quarter with cash and cash equivalents of $12.9 million, compared to $47.3 million at end of the prior-year quarter.
On Tuesday, McCormick declared a quarterly dividend of $0.24 per share on its common stocks payable on July 20, to shareholders of record on July 6, 2009. This is the 85th year of consecutive dividend payments by the company.
Half Yearly Highlights
For the first six months, McCormick reported net income of $108.4 million or $0.82 per share, higher than $104.8 million or $0.80 per share in the prior-year period. Adjusted net income for the period advanced to $113.4 million or $0.86 per share from $105.3 million or $0.80 per share in the year-ago period.
Net sales for the year-to-date period edged down to $1.48 billion from $1.49 billion in the same period last year.
Looking ahead........
"McCormick employees are effectively managing through these challenges and have remained focused on sales growth, cost containment and meeting objectives. Our business fundamentals are sound and we are well-positioned for further increases in sales and profit," Wilson added.
For fiscal 2009, based on its solid financial results, McCormick reaffirmed its earnings forecast in the range of $2.24 to $2.28, which includes $0.05 of restructuring charges. Excluding items, adjusted earnings per share is anticipated to grow 7% to 9% from fiscal 2008, translating to an earnings range of $2.29 to $2.33. Analysts expect the company to report full year 2009 earnings of $2.30 per share.
The company also continues to expect fiscal 2009 sales to grow 2% to 3% from last year, reflecting sales between $3.24 billion and $3.28 billion. The Street is looking for revenues of $3.26 billion for the full year 2009.
Further, the company stated that the CCI program and other cost saving actions would lead to $30 million in cost reductions in fiscal 2009. The company also expects to achieve a gross profit margin growth of 50 basis points from last year.
Stock Quotes
In Thursday's regular trading session, MKC is currently trading at $32.06, down $0.27 or 0.84% on a volume of 0.19 million shares. In the past 52-week period, the stock has been trading in a range of $28.08 to $42.06.
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