McCormick Reports Record Sales and Earnings Per Share for Fiscal 2001
Sales for the year ended November 30, 2001, rose 12% to $2.4 billion. Excluding the impact of foreign exchange and the incremental impact of Ducros for the first three quarters of the fiscal year, sales increased 4% in 2001. For the fourth quarter, sales increased 3%.
Gross profit margin for the year was 40.9%, an increase of 3.0 percentage points above 2000. Two-thirds of this increase was a result of the incremental impact of Ducros in the first three quarters. The higher gross profit margin of Ducros products was offset in part by higher operating expenses associated with these sales. The remaining gross profit margin increase was due to a shift in product mix to higher-margin, more value-added products, global procurement initiatives, efforts to improve efficiencies and favorable raw material costs. Gross profit margin for the fourth quarter of 2001 increased to 44.6% from 43.8% in 2000.
In the fourth quarter, the Company adopted a plan to further streamline operations in certain worldwide locations. The charges associated with the fourth quarter decreased net income for the quarter and fiscal year by $7.7 million and diluted earnings per share by 11 cents. These streamlining actions are expected to result in savings which will be used for investment spending on initiatives such as brand support and supply chain management.
For 2001, operating income was $241 million. Excluding the impact of special charges, operating income rose 12% to $252 million, driven primarily by the sales increase. For the fourth quarter, operating income was $90 million. Excluding special charges, operating income was $101 million, a 4% increase over 2000 and in line with the growth rate of sales for the fourth quarter.
Earnings per share for 2001 were $2.09. Excluding the impact of special charges, earnings per share rose 11% to $2.20. For the fourth quarter, McCormick reported earnings per share of 84 cents. Excluding special charges, fourth quarter earnings per share rose 13% to 95 cents. The primary drivers of the fourth quarter earnings improvement were 4 cents from operations, 4 cents from a lower effective tax rate and 3 cents of higher income from unconsolidated operations.
On November 30, 2001, the Company's debt-to-total-capital ratio was 58%, down from 66% a year ago. Cash flow from operations was $205 million for 2001 compared to $202 million in 2000. In 2001, $112 million of the cash flow from operations funded capital expenditures, including higher investment related to Beyond 2000 (B2K). The capital expenditures for 2002 are expected to approximate $100 million because of this initiative, then return to a level close to annual depreciation expense.
Consumer Business (in thousands) Three Months Ended Year Ended 11/30/01 11/30/00 11/30/01 11/30/00 Net sales $401,416 $384,308 $1,191,998 $990,613 Operating income 81,097 80,918 161,896 157,579 Operating income, excluding special charges 86,229 80,918 167,028 157,699For fiscal year 2001, sales for McCormick's consumer business rose 20% and excluding the impact of foreign exchange, increased 22%. Excluding the impact of foreign exchange and the incremental impact of Ducros for the first three quarters, sales increased 4%. Operating income increased 3% and excluding special charges grew 6%, primarily as a result of the sales increase. In 2001, the lower operating income margin for the consumer business was primarily due to the lower operating income margin of the incremental Ducros sales, and the costs associated with investment spending in programs such as B2K.
For the fourth quarter, sales for McCormick's consumer business rose 4% above 2000. In total, the net impact of foreign exchange on the consumer business was minimal. In local currency, consumer sales were up 3% in the Americas, 8% in Europe and 4% in Asia. Both volume and pricing contributed to these increases. Operating income for the consumer business was $81 million. Excluding special charges, operating income was $86 million, an increase of 7% over 2000's fourth quarter results. Operating income margin for the quarter improved over last year.
Industrial Business (in thousands) Three Months Ended Year Ended 11/30/01 11/30/00 11/30/01 11/30/00 Net sales $259,817 $249,396 $1,000,416 $954,560 Operating income 15,676 18,514 89,686 78,110 Operating income, excluding special charges 21,610 18,559 95,620 79,043For fiscal year 2001, sales for McCormick's industrial business rose 5% and excluding the impact of foreign exchange, increased 6%. Excluding the impact of foreign exchange and the incremental impact of Ducros for the first three quarters, sales increased 4%. Operating income increased 15% and excluding special charges grew 21%, primarily as a result of the sales increase and higher margins. The improvement in industrial operating margin in 2001 was due to cost reduction initiatives, favorable raw material costs and a shift in sales to more higher-margin, value-added products.
For the fourth quarter, industrial sales increased 4% versus last year. Excluding the net impact of foreign exchange, industrial sales increased 5%. In local currency, industrial sales increased 4% in the Americas, 5% in Europe and 8% in Asia. Higher volumes this quarter drove most of the increase. Operating income for the quarter was $16 million. Excluding special charges, operating income was $22 million, an increase of 16% over 2000's fourth quarter. Operating income margin improved primarily from a shift in sales to more higher-margin, value-added products, favorable raw material costs and cost reduction initiatives.
Packaging Business (in thousands) Three Months Ended Year Ended 11/30/01 11/30/00 11/30/01 11/30/00 Net sales $39,810 $45,827 $179,983 $178,351 Operating income 2,262 5,479 18,733 21,494 Operating income, excluding special charges 2,894 5,479 19,365 21,509For fiscal year 2001, third party sales for McCormick's packaging business rose 1%. Operating income (including intersegment business) decreased 13% and excluding special charges decreased 10%, primarily as a result of the decrease in sales and a less favorable product mix.
For the fourth quarter, the packaging business reported third party sales down 13% versus last year. Operating income (including intersegment business) was $2 million. Excluding special charges, operating income for the fourth quarter of 2001 was $3 million, a decline of $3 million when compared to last year's result. The state of the economy has caused a decreased demand for products supplied to the health and personal care industry. Actions have been taken to adjust production activities, including a reduction in our workforce.
Chairman's Comments
Commented Robert J. Lawless, Chairman, President & CEO, "2001 has been another successful year for McCormick. We have met or exceeded Wall Street earnings expectations for 12 consecutive quarters, and this was our fifth straight year of double-digit earnings per share growth.
"We set targets for financial performance early in the year. Our objective for sales growth was an increase of 12-14%. We increased sales 12%, and excluding foreign exchange the increase was 13%. Including our share of joint venture revenues, worldwide sales exceeded $2.5 billion in 2001. We also had a goal to reach a 40% gross profit margin and ended the year at 40.9%. For earnings per share, our target range was 8-10%, which included a projection of 10 cents of dilution related to our acquisition of Ducros. Excluding special charges, McCormick's earnings growth in 2001 was 11%.
"We are particularly pleased with this performance, given today's more difficult environment. The most direct negative impact on 2001 earnings was in our packaging business, where fall-off in demand for many of our tubes affected sales and to a larger extent, earnings. Along with other food companies, we are feeling pressure from our grocery customers who operate in a highly competitive environment. We also supply many restaurant customers who are working hard to increase sales and contain costs. In our own operations we are facing cost increases in employee benefits and insurance expense, and our Beyond 2000 program is at a stage where incremental costs are being incurred.
"Given this environment, several factors made 2001 a success and provide optimism for the future. First and foremost, McCormick's employees - their talent, drive and determination. Second, our ability to develop and supply consumer-preferred flavors for all consumers - those who prepare meals, eat out or prefer convenience foods. New products developed in the last three years accounted for more than 10% of 2001 net sales. A third factor is our leadership position in the spice and seasoning category and our strong customer relationships. Finally, our ongoing efforts to increase efficiency and reduce costs. This is the focus of Beyond 2000, our program designed to improve business processes and support them with state-of-the-art information technology. We made great progress on B2K last year and will "go live" in our first two operating units mid-year in 2002.
"As part of our effort to increase efficiency and reduce costs we identified several streamlining actions at the end of 2001. These actions include facility consolidations, other workforce reductions and the reorganization of several joint ventures. We believe these actions will strengthen our ability to compete in the marketplace and yield substantial efficiencies for the future.
"Although McCormick will continue to face challenges in 2002, we have effective strategies for growth and are well-positioned in our key markets. In 2002, B2K will again be a major focus of the Company, and will continue to require incremental funding. Given this and other investments and the state of the economy, we have set the following objectives for financial performance in 2002: sales growth of 4-6%; gross profit margin improvement of .5-.75 percentage points; and earnings per share increase of 9-11%. We are committed to delivering excellent financial results and believe that with this performance we will continue to be among the top performers in the food industry.
"Congratulations to the employees of McCormick for a terrific year. We also recognize our valued customers for their business and for the opportunity to work together to build sales. And thanks to our shareholders for their confidence in this Company and in our ability to deliver shareholder value."
Special Charges
During the last three years, the Company made significant progress in streamlining its operations in a manner consistent with its strategic plan. Gross profit margins improved dramatically during this period by 640 basis points. All of this served as the primary fuel for revenue growth and improved profits. With investment in B2K, the Company is well positioned to continue this record of improving margins into the future.
While the year 2001 was another record year for McCormick, the U.S. and global economies did not fare as well. By the fall, the U.S. was in a recession. Recognizing that the Company is not immune to the impact of these difficult financial times on its customers and consumers, a plan was formalized to more rapidly streamline operations to meet the challenges that McCormick and all companies will face in 2002 and beyond.
During the fourth quarter of 2001, the Company adopted a plan to further streamline its operations. This plan includes the consolidation of several distribution and manufacturing locations, the reduction of administrative and manufacturing positions, and the reorganization of several joint ventures. The total plan will cost approximately $32.6 million ($25.6 million after tax) and will be implemented over the next 18 months. Total cash expenditures in connection with these costs will approximate $13.7 million, which will be funded through internally generated funds. Once fully implemented, annualized savings are expected to be approximately $8 million ($5.3 million after tax). These savings will be used for investment spending on initiatives such as brand support and supply chain management. The aforementioned savings and administrative expenses are expected to be included within the cost of goods sold and selling, general and administrative expenses in the consolidated statement of income.
In the fourth quarter of 2001, the Company recorded charges of $11.7 million ($7.7 million after tax) under this plan. Of this amount, $10.8 million was classified as special charges and $0.9 million as cost of goods sold in the consolidated statement of income. Additional amounts under the plan were not recorded since they are either incremental costs directly related to the implementation of the plan and will be expensed as incurred, or the plans were not sufficiently detailed to allow for accounting accrual. The Company expects to record these additional costs in 2002.
The costs recorded in the fourth quarter of 2001 were related to the consolidation of manufacturing in Canada, a distribution center consolidation in the U.S., a product line elimination and a realignment of our sales operations in the U.K., and a workforce reduction of 275 positions, which encompasses streamlining plans in all segments and geographic areas. As of November 30, 2001, 135 of the 275 position reductions had been realized.
The major components of the special charges include charges for employee termination benefits of $6.3 million, impairment charges of $1.6 million and other related exit costs of $3.8 million. Asset impairments consist of $0.7 million of property, plant and equipment and $0.9 million of inventory, which were recorded as a direct result of the Company's decision to exit facilities or product lines. Other exit costs consist primarily of lease terminations.
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 10:00 a.m. EST. The conference call will be web cast live via the McCormick corporate web site http://www.mccormick.com. Click on "Company Information" then "Investor Services," and follow directions to listen to the call. At this same location, a replay of the call will be available for one week following the live call. Past press releases and additional information can be found at the Company's website.
Forward-Looking Statement
Certain information contained in this release, including expected trends in net sales and earnings performance, are "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could be materially affected by external factors such as: actions of competitors, customer relationships, market acceptance of new products, actual amounts and timing of special charge items, removal and disposal costs, final negotiations of third-party contracts, the impact of the stock market conditions on its share repurchase program, fluctuations in the cost and availability of supply-chain resources and global economic conditions, including currency rate fluctuations. The Company undertakes no obligation to update or revise publicly, any forward-looking statements, whether as a result of new information, future events or otherwise.
About McCormick
McCormick & Co., Inc. is the global leader in the manufacture, marketing and distribution of spices, seasonings and flavors to the entire food industry - to foodservice and food processing businesses as well as to retail outlets. In addition, the packaging group manufactures and markets specialty plastic bottles and tubes for personal care and other industries.
McCormick & Company, Incorporated Fourth Quarter Report Consolidated Income Statement (Unaudited) (In thousands except per-share data) Three Months Ended Year Ended 11/30/2001 11/30/2000 11/30/2001 11/30/2000 Net sales 701,043 679,531 2,372,397 2,123,524 Cost of goods sold 388,601 381,888 1,401,002 1,318,712 Gross profit 312,442 297,643 971,395 804,812 Gross profit margin 44.6% 43.8% 40.9% 37.9% Selling, general & administrative expense 211,931 200,638 719,936 578,696 Special charges 10,848 45 10,848 1,068 Operating income 89,663 96,960 240,611 225,048 Interest expense 12,121 14,928 52,891 39,736 Other income 452 790 2,722 685 Income before income taxes 77,994 82,822 190,442 185,997 Income taxes 25,688 29,861 62,908 66,649 Net income from consolidated operations 52,306 52,961 127,534 119,348 Income from unconsolidated operations 7,565 5,190 21,464 18,687 Minority interest (771) (504) (2,364) (504) NET INCOME $59,100 $57,647 $146,634 $137,531 EARNINGS PER SHARE - BASIC $0.85 $0.84 $2.13 $2.00 EARNINGS PER SHARE - ASSUMING DILUTION $0.84 $0.84 $2.09 $1.98 Average shares outstanding - basic 69,176 68,438 68,895 68,799 Average shares outstanding - assuming dilution 70,629 69,023 70,106 69,580 Condensed Consolidated Balance Sheet (Unaudited) (In thousands) 11/30/2001 11/30/2000 Assets Receivables $295,539 $303,340 Inventories 278,073 274,039 Prepaid allowances 99,263 96,072 Property, plant and equipment, net 424,449 372,999 Other assets 674,700 613,490 Total assets $1,772,024 $1,659,940 Liabilities and shareholders' equity Short-term borrowings $210,879 $551,961 Other current liabilities 502,964 475,195 Long-term debt 454,068 160,192 Other liabilities 141,098 113,249 Shareholders' equity 463,015 359,343 Total liabilities and shareholders' equity $1,772,024 $1,659,940 MAKE YOUR OPINION COUNT - Click Here http://tbutton.prnewswire.com/prn/11690X72580568SOURCE McCormick & Company, Incorporated
CONTACT: McCormick & Company Corporate Communications, +1-410-771-7310 URL: http://www.mccormick.com http://www.prnewswire.com
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