McCormick Reports Record Sales and Net Income for Second Quarter
Sales for the quarter were $553 million, an increase of 4% versus the second quarter of 2001. The majority of the increase was due to higher volume for the quarter, achieved through strong sales of both core items and new products, and the positive impact of the timing of certain customer purchases. Gross profit margin for the second quarter was 34.9%, 0.9 percentage points above last year. This was due to higher volumes, continued success in shifting sales to higher-margin, more value-added products, as well as favorable raw material costs, global procurement initiatives and ongoing efforts to improve efficiencies.
Earnings per share reported for the second quarter were $0.24 versus $0.19 in 2001. Excluding goodwill amortization, earnings per share for the second quarter of 2001 were $0.21. On this comparable basis, earnings per share for the second quarter increased 14%. The drivers of the second quarter earnings increase were $0.02 from operations and $0.01 from interest expense. The $0.02 from operations includes:
-- a favorable $0.02-$0.03 from customer purchases in advance of the
Company's implementation of new systems under its Beyond 2000 program
in certain U.S. businesses at the end of the second quarter
-- an unfavorable $0.01-$0.02 from customer purchases in advance of a
U.S. consumer price increase at the end of the first quarter
-- an unfavorable $0.02 from one-time charges and poor performance
associated with the U.K. brokerage business
Special charges for the period were costs associated with previously announced
streamlining actions that could not be accrued last year. They include costs of
the consolidation of manufacturing in Canada and the closure of a U.S.
distribution center.
Consumer Business
(in thousands) Three Months Ended Six Months Ended
5/31/02 5/31/01 5/31/02 5/31/01
Net sales $245,348 $231,957 $482,627 $460,144
Operating income 30,821 25,931 66,053 52,960
Operating income, excluding
special charges and
goodwill amortization 31,823 28,799 67,393 58,714
In the second quarter, sales for McCormick's consumer business rose 6% above
2001. Excluding a favorable impact from foreign exchange, sales rose 5%, with
increases in both volume and price. The Company achieved higher sales of new
products as well as core products. In local currency, consumer sales rose 8% in
the Americas, 2% in Europe and 2% in the Asia/Pacific region. Sales in the
Americas benefited from customer purchases in advance of the Company's U.S.
implementation of new systems under its Beyond 2000 program, offset in part by
lower second quarter sales resulting from higher customer purchases in advance
of a U.S. price increase at the end of the first quarter. Operating income for
the consumer business was $31 million in the second quarter. Excluding special
charges and goodwill amortization for both years, operating income for 2002 was
$32 million versus $29 million in 2001, an increase of 10%. Income from strong
sales in the quarter was partially offset by poor performance and charges for
inventory and receivables write-offs in the U.K. brokerage business.
Industrial Business
(in thousands) Three Months Ended Six Months Ended
5/31/02 5/31/01 5/31/02 5/31/01
Net sales $261,437 $249,893 $505,919 $476,127
Operating income 27,125 24,358 50,378 43,690
Operating income, excluding
special charges and
goodwill amortization 27,667 24,664 50,944 44,306
For the second quarter, industrial sales increased 5% versus last year. Higher
volume drove this increase. In local currency, industrial sales increased 4% in
the Americas, 3% in Europe and 9% in the Asia/Pacific region. In the U.S.,
customer purchases in advance of the implementation of Beyond 2000 had a
positive impact on sales to food service customers. Second quarter seasonings
and flavors sales were also strong in the U.S. Operating income for the quarter
was $27 million. Excluding special charges and goodwill amortization for both
years, operating income for 2002 was $28 million versus $25 million in 2001, an
increase of 12%. The increase was due to higher volumes, a shift in sales to
more higher-margin, value-added products, and effective cost reduction
initiatives.
Packaging Business
(in thousands) Three Months Ended Six Months Ended
5/31/02 5/31/01 5/31/02 5/31/01
Net sales $45,835 $49,318 $82,980 $94,344
Operating income 4,855 6,105 7,744 11,447
Operating income, excluding
special charges and
goodwill amortization 4,970 6,150 7,864 11,537
As expected, difficult results from the packaging business continued through the
first half of 2002. The packaging business reported third party sales for the
quarter down 7% versus last year. Operating income (including intersegment
business) for the second quarter of 2002 declined to $5 million from $6 million
in 2001. Midway through 2001, the state of the economy caused a decline in
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. At the end of the second quarter, customer demand for packaging is
beginning to show signs of recovery.
Chairman's Comments
Commented Robert J. Lawless, Chairman, President & CEO, "McCormick had good sales growth and margin improvement through the first half of our fiscal year. In our consumer business, we increased worldwide sales of core products, new products and increased our customer base. The growth in our industrial business came from several sectors including snack seasonings and sales to food service and restaurant customers. Customer purchases in advance of our first implementation of Beyond 2000 gave an additional lift to several of our businesses. We continue to grow our margin by improving our product mix and reducing costs.
"We faced two challenges this quarter. First, was the reduction in sales for our packaging business. This decline began one year ago and, as expected, impacted us through the second quarter of 2002. We are beginning to see some initial signs of recovery with a rebound in customer orders. The second challenge occurred in the U.K. with a brokerage business that we acquired in conjunction with the Schwartz spice and seasoning brand in 1984. This business had some one-time charges in the second quarter and a sales decline in the first half. The Company has taken immediate action by bringing customer service activity in-house, after outsourcing the activity in 2001. We are also changing to a new firm to handle the distribution function for this business and evaluating other options for this part of our operation.
"Based on our outlook for the next two quarters, our guidance for fiscal year 2002 is consistent with our original targets: 4-6% sales growth, 50-75 percentage points gross profit margin improvement, and 9-11% earnings per share increase. For the third quarter, sales will be slightly above last year for two reasons. First, the customer purchases in advance of our Beyond 2000 implementation at the end of the second quarter will cause lower third quarter sales. Second, sales from the U.K. brokerage business are expected to be weak as we change our customer service and distribution activities. The timing of customer purchases related to Beyond 2000 is expected to reduce earnings per share for the third quarter by up to $0.03. The third quarter will also be impacted by higher expenses related to Beyond 2000 implementation and continued weakness in the U.K. brokerage business. As a result of these factors, we expect that earnings per share for the third quarter will range from $0.24 to $0.25. Sales and earnings are expected to return to strong growth for the fourth quarter, with sales strength in our core consumer and industrial businesses, continued margin improvement, recovery in our packaging business and a more positive foreign exchange environment.
"Several recent accomplishments at McCormick this quarter are also noteworthy. On June 5, 2002, our first operating units converted, on schedule, to the new processes and systems of our Beyond 2000 (B2K) program. Many employees have been working intently over the past 18 months on this program with the aim of serving our customers more effectively, operating more efficiently and building knowledge. This conversion has occurred smoothly, and we continue to progress with our B2K efforts.
"Also this quarter, McCormick opened a new sensory facility in our Hunt Valley based Technical Innovation Center. This facility offers our industrial customers and our consumer business a superior capability for determining consumer preferences. In our Asia/Pacific region, responsibility for our industrial business across the entire region has recently been consolidated to better align McCormick with the key multi-national customers we serve.
"Our employees are pursuing sales and profit growth across all of our global businesses. To achieve this growth, the Company is making key investments in initiatives like Beyond 2000, product innovation, and organizational improvements. McCormick is committed to delivering shareholder value, and I am confident that we will achieve our goals for 2002."
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 10:00 a.m. EDT. The conference call will be webcast 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 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 & Company, 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.
Second Quarter Report McCormick & Company, Incorporated
Consolidated Income Statement (Unaudited)
(In thousands except per-share data)
Three Months Ended Six Months Ended
05/31/2002 05/31/2001 05/31/2002 05/31/2001
Net sales $552,620 $531,168 $1,071,526 $1,030,615
Cost of goods sold 359,925 350,484 693,580 680,302
Gross profit 192,695 180,684 377,946 350,313
Gross profit margin 34.9% 34.0% 35.3% 34.0%
Selling, general &
administrative
expense 135,534 131,114 268,320 255,804
Special charges 1,659 0 2,026 0
Operating income 55,502 49,570 107,600 94,509
Interest expense 11,118 13,458 22,181 27,745
Other (income)/expense 397 399 (650) (574)
Income before income taxes 43,987 35,713 86,069 67,338
Income taxes 13,794 11,821 27,040 22,289
Net income from consolidated
operations 30,193 23,892 59,029 45,049
Income from
unconsolidated
operations 4,141 3,181 9,819 9,260
Minority interest (721) (437) (1,394) (1,087)
Net income $33,613 $26,636 $67,454 $53,222
Basic earnings-per-share:
Net income $0.24 $0.19 $0.48 $0.39
Net income excluding
goodwill $0.24 $0.22 $0.48 $0.43
Diluted earnings-per-share:
Net income $0.24 $0.19 $0.47 $0.38
Net income excluding
goodwill $0.24 $0.21 $0.47 $0.43
Average shares outstanding
- basic 139,668 137,648 139,163 137,338
Average shares outstanding
- assuming dilution 142,984 140,108 142,197 139,392
Note 1: In connection with its adoption of EITF 01-09, the Company has
reclassified certain 2001 marketing expenses as a reduction of sales.
Concurrent with the adoption of EITF 01-09, the Company has also
reclassified certain 2001 expenses from selling, general and
administrative expense to cost of goods sold. Classification is
consistent between 2001 and 2002.
Note 2: The Company adopted SFAS No. 141 and 142 as of December 1, 2001.
The net income excluding goodwill reflects what earnings per share would
have been had the accounting principles been adopted at the beginning of
2001.
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
05/31/2002 05/31/2001
Assets
Cash $ 40,158 $ 47,484
Receivables 277,433 248,641
Inventories 289,727 285,170
Prepaid allowances 130,273 104,918
Property, plant and equipment, net 467,922 394,659
Other assets 644,791 570,270
Total assets $ 1,850,304 $ 1,651,142
Liabilities and shareholders' equity
Short-term borrowings $ 271,773 $ 303,140
Other current liabilities 440,662 406,281
Long-term debt 453,989 454,298
Other liabilities 141,472 117,176
Shareholders' equity 542,408 370,247
Total liabilities and
shareholders' equity $ 1,850,304 $ 1,651,142
SOURCE McCormick & Company, Incorporated
CONTACT: McCormick & Company Corporate Communications, +1-410-771-7310 URL: http://www.mccormick.com