McCormick Reports Record Third Quarter Sales and Profit
- Increased sales 8%. Consumer business sales rose 9% and industrial business sales rose 7%.
- Reported earnings per share of $0.43. On a comparable basis, excluding restructuring charges, earnings per share increased 7% to $0.45.
- Reaffirmed expectation to increase earnings per share 9-11% for fiscal year 2007 on a comparable basis.
SPARKS, Md.--(BUSINESS WIRE)--Sept. 27, 2007--McCormick & Company, Incorporated (NYSE:MKC), today reported record results for the third quarter ended August 31, 2007 and reaffirmed guidance for the fiscal year. For the third quarter, earnings per share were $0.43 compared to $0.32 in the prior year. On a comparable basis, excluding restructuring charges, the Company increased earnings per share 7% to $0.45 in the third quarter of 2007, compared to earnings per share of $0.42 a year ago.
Robert J. Lawless, Chairman and CEO, commented, "We were pleased to achieve strong sales increases in both domestic and international markets. Despite higher material costs, our net income and earnings per share were on target. For the 2007 fiscal year we reaffirm our expectations to grow sales 5-7% and increase earnings per share 9-11% on a comparable basis."
Sales in the third quarter rose 8%, which was an increase of 6% in local currency. The Company increased sales significantly in international markets with a 12% increase in Europe and a 21% increase in the Asia/Pacific region. The increases were primarily from favorable foreign exchange rates as well as higher volume. Sales in North America rose 6% due to favorable price and product mix as well as higher volume. In the U.S. consumer business, a portion of the third quarter volume increase related to an estimated $9-11 million of earlier shipments for the fall season. The elimination of lower margin business reduced sales 1% during the third quarter of 2007.
A decrease of 0.9 percentage points in gross profit margin was primarily due to the impact of higher material costs on the industrial business. The impact of these higher costs on margin more than offset the benefit of savings from the Company's restructuring program that are being realized in 2007. While the Company continues to take pricing actions to offset increased material costs, gross profit margin will continue to be under pressure through the remainder of fiscal year 2007. Selling, general and administrative expense was favorably impacted by cost savings as well as lower incentive compensation expense in the third quarter of 2007.
Earnings per share were $0.43 compared to $0.32 in the third quarter of 2006. Charges related to the Company's restructuring program decreased earnings per share $0.02 in the third quarter of 2007 compared to $0.10 in the third quarter of 2006. Excluding these impacts in both periods, earnings per share rose $0.03 driven by sales growth and higher operating income margin. The unfavorable impacts of a higher tax rate and increased interest expense were offset in part by lower average shares outstanding. The Company increased its pace of share buyback activity during the third quarter with repurchases of $89 million compared to $28 million in the third quarter of 2006 bringing the year-to-date repurchases to $147 million. It also reaffirmed its guidance for share repurchases of up to $180 million in 2007.
For the 2007 fiscal year, on a comparable basis, which excludes the impact of restructuring charges, the Company expects to grow earnings per share 9-11% in 2007. Including estimated restructuring charges of $0.18, 2007 earnings per share are projected to be in the range of $1.69-$1.73.
Mr. Lawless further stated, "We are on track for 2007 to be another record year at McCormick. We have passed the half-way point of our 3-year restructuring program and are realizing cost savings from our actions to simplify our business and improve profitability. Both our consumer and industrial segments are benefiting from this program, as well as the key growth initiatives that are driving sales with innovative new products, revitalization of our core products and more effective marketing. This progress is a testament to the capabilities, energy and effort of McCormick employees around the world."
Business Segment Results
Consumer Business
(in thousands) Three Months Ended Nine Months Ended
------------------- ---------------------
8/31/07 8/31/06 8/31/07 8/31/06
-------- -------- --------- ---------
Net sales $ 387,423 $ 357,059 $1,134,704 $1,051,877
Operating income 66,303 49,260 170,074 114,238
Operating income, excluding
restructuring charges 70,513 60,679 183,843 155,692
In the third quarter, sales for McCormick's consumer business rose 9%, which was an increase of 6% in local currency. The increase was led by higher volume that included an estimated 2-3% benefit related to earlier shipments for the fall season when compared to the third quarter of 2006. In addition to higher volume, favorable price and product mix also increased sales. Consumer sales in the Americas rose 8% and 7% in local currency. Earlier shipments for the fall season added an estimated 4-5% to sales. The Company grew sales of Hispanic items, seafood complements, Zatarain's brand and gourmet products in the U.S. and the Club House brand in Canada. Consumer sales in Europe increased 10%, which was an increase of 3% in local currency. Increases in the U.K. and France were achieved with marketing support behind branded products and pricing actions. In the Asia/Pacific region, sales rose 11%, which was an increase of 1% in local currency. Double-digit sales growth in China was largely offset by poor sales performance in Australia.
In the third quarter, consumer business operating income excluding restructuring charges rose to $70.5 million from $60.7 million in 2006. This was an increase of 16%, driven primarily by higher sales and lower selling, general and administrative expense.
Industrial Business
(in thousands) Three Months Ended Nine Months Ended
------------------- -------------------
8/31/07 8/31/06 8/31/07 8/31/06
-------- -------- -------- --------
Net sales $ 328,804 $ 306,036 $ 921,377 $ 860,825
Operating income 22,585 14,906 52,072 28,919
Operating income, excluding
restructuring charges 22,585 22,745 57,565 53,109
In the third quarter, sales for McCormick's industrial business increased 7%, which was an increase of 5% in local currency. The impact of the Company's actions to eliminate lower margin customers and products reduced sales in the third quarter by 2%. The remaining increase of 7% had equal contributions from volume and from price and product mix. Industrial sales in the Americas rose 3%, which was an increase of 2% in local currency. The elimination of lower margin customers and products in this part of the industrial business reduced sales 2%. Higher sales were driven largely by price increases related to higher material costs. Increased volume of snack seasonings and new products for large food manufacturers were offset by lower demand from restaurant customers that was related to general industry weakness. In Europe, industrial sales rose 16%, which was an increase of 9% in local currency, with continued strength in sales of condiments and of seasonings for snack products. In addition, sales of branded food service products in the U.K. contributed to the increase. In this region, the elimination of lower margin customers reduced sales 2%. Sales in the Asia/Pacific region rose 27%, which was an increase of 19% in local currency, with significant gains in both China and Australia.
In the third quarter, industrial business operating income excluding restructuring charges was $22.6 million compared to $22.7 million in 2006. The benefit of higher sales and lower selling, general and administrative expense was offset by significant increases in several commodities.
Non-GAAP Financial Measures
The pro forma information excluding restructuring charges in this press release are not measures that are defined in generally accepted accounting principles ("GAAP"). Management believes the pro forma information is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our on-going operations. Management analyzes the Company's business performance and trends excluding amounts related to the restructuring. These measures provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.
Pro forma Information The Company has provided below certain pro forma financial results excluding amounts related to a restructuring program in 2007 and 2006.
(in thousands except per
share data) Three Months Ended Nine Months Ended
------------------- -------------------
8/31/07 8/31/06 8/31/07 8/31/06
------- ------- ------- --------
Net income $ 56,848 $ 43,068 $142,502 $ 119,100
Impact of restructuring
charges (credits) 2,996* 13,253* 14,076* 17,207*
-------- -------- -------- ---------
Pro forma net income $ 59,844 $ 56,321 $156,578 $ 136,307
======== ======== ======== =========
Earnings per share - diluted $ 0.43 $ 0.32 $ 1.07 $ 0.88
Impact of restructuring
charges (credits) 0.02 0.10 0.10 0.13
-------- -------- -------- ---------
Pro forma earnings per share
- diluted $ 0.45 $ 0.42 $ 1.17 $ 1.01
======== ======== ======== =========
% increase versus prior
period 7.1% 15.8%
* The impact of restructuring activity on net income includes:
Restructuring charges
included in Cost of good
sold $ (1,365) $ (1,723) $ (2,614) $ (6,426)
Restructuring charges (2,845) (17,535) (16,648) (59,218)
Tax impact included in
income taxes 1,180 5,752 5,997 21,656
Gain/(Loss) on sale of
unconsolidated operations 34 253 (811) 26,781
--------- --------- --------- ----------
$ (2,996) $(13,253) $(14,076) $ (17,207)
========= ========= ========= ==========
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 web cast live via the McCormick corporate web site. Go to ir.mccormick.com and follow directions to listen to the call and access the accompanying presentation materials. At this same location, a replay of the call will be available following the live call. Past press releases and additional information can be found at this address.
Forward-looking Information
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, ability to realize expected cost savings and margin improvements, market acceptance of new products, actual amount 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 interest and currency rate fluctuations, and inflation rates. Actual results could differ materially from those projected in the forward-looking statements. 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, Incorporated is the global leader in the manufacture, marketing and distribution of spices, seasonings and flavors to the entire food industry - to foodservice and food manufacturers as well as to retail outlets.
Third Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Income Statement (Unaudited)
(In thousands except per-share data)
Three Months Ended Nine Months Ended
----------------------- -----------------------
8/31/2007 8/31/2006 8/31/2007 8/31/2006
----------- ----------- ----------- -----------
Net sales $ 716,227 $ 663,095 $2,056,081 $1,912,702
Cost of goods sold 431,898 393,818 1,235,600 1,153,775
----------- ----------- ----------- -----------
Gross profit 284,329 269,277 820,481 758,927
Gross profit margin 39.7% 40.6% 39.9% 39.7%
Selling, general
and administrative
expense 192,596 187,576 581,687 556,552
Restructuring
charges 2,845 17,535 16,648 59,218
----------- ----------- ----------- -----------
Operating income 88,888 64,166 222,146 143,157
Interest expense 15,805 14,048 44,890 39,234
Other income, net (2,411) (2,078) (6,482) (5,000)
----------- ----------- ----------- -----------
Income from
consolidated
operations before
income taxes 75,494 52,196 183,738 108,923
Income taxes 23,200 13,647 55,944 30,739
----------- ----------- ----------- -----------
Net income from
consolidated
operations 52,294 38,549 127,794 78,184
Income from
unconsolidated
operations 4,596 4,398 16,192 16,442
Gain / (Loss) on
sale of
unconsolidated
operations 34 253 (811) 26,781
Minority interest (76) (132) (673) (2,307)
----------- ----------- ----------- -----------
Net income $ 56,848 $ 43,068 $ 142,502 $ 119,100
=========== =========== =========== ===========
Earnings per common
share - basic $ 0.44 $ 0.33 $ 1.10 $ 0.90
=========== =========== =========== ===========
Earnings per common
share - diluted $ 0.43 $ 0.32 $ 1.07 $ 0.88
=========== =========== =========== ===========
Average shares
outstanding - basic 129,096 131,587 129,799 132,119
Average shares
outstanding - diluted 132,405 134,829 133,326 135,197
Third Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Balance Sheet
(Unaudited)
(In thousands)
8/31/2007 8/31/2006
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 45,724 $ 37,712
Receivables, net 399,859 327,822
Inventories 439,859 417,095
Prepaid expenses and other
current assets 58,151 47,134
------------- -------------
Total current assets 943,593 829,763
Property, plant and equipment, net 469,514 457,253
Goodwill and intangible assets, net 1,040,108 977,629
Prepaid allowances 46,682 43,069
Investments and other assets 173,448 153,004
------------- -------------
Total assets $ 2,673,345 $ 2,460,718
============= =============
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $ 455,686 $ 152,843
Trade accounts payable 209,333 188,509
Other accrued liabilities 338,940 348,322
------------- -------------
Total current liabilities 1,003,959 689,674
Long-term debt 417,972 566,140
Other long-term liabilities 272,851 285,134
------------- -------------
Total liabilities 1,694,782 1,540,948
Minority interest 9,233 3,267
Shareholders' equity
Common stock 489,406 431,628
Retained earnings 298,787 378,893
Accumulated other comprehensive
income 181,137 105,982
------------- -------------
Total shareholders' equity 969,330 916,503
------------- -------------
Total liabilities and
shareholders' equity $ 2,673,345 $ 2,460,718
============= =============
Third Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
---------------------------------
8/31/2007 8/31/2006
------------- -------------
Cash flows from operating activities
Net income $ 142,502 $ 119,100
Adjustments to reconcile net
income to net cash flow from
operating activities:
Depreciation and amortization 61,389 61,282
Stock based compensation 17,489 20,500
Loss / (Gain) on sale of
unconsolidated operation 811 (26,781)
Income from unconsolidated
operations (16,192) (16,442)
Changes in operating assets and
liabilities (192,713) (46,789)
Dividends from unconsolidated
affiliates 9,674 9,100
------------- -------------
Net cash flow from operating
activities 22,960 119,970
------------- -------------
Cash flows from investing activities
Acquisitions of businesses (15,943) (102,616)
Capital expenditures (50,632) (51,750)
Proceeds from redemption of
unconsolidated operation - 9,236
Proceeds from sale of property,
plant and equipment 111 379
------------- -------------
Net cash flow used in investing
activities (66,464) (144,751)
------------- -------------
Cash flows from financing activities
Short-term borrowings, net 223,642 46,907
Long-term debt borrowings - 298,553
Long-term debt repayments (344) (197,553)
Proceeds from exercised stock
options 34,118 34,070
Common stock acquired by purchase (146,828) (87,952)
Dividends paid (78,095) (71,420)
------------- -------------
Net cash flow provided by (used in)
financing activities 32,493 22,605
------------- -------------
Effect of exchange rate changes on
cash and cash equivalents 7,692 9,625
------------- -------------
Increase/(decrease) in cash and cash
equivalents (3,319) 7,449
Cash and cash equivalents at
beginning of period 49,043 30,263
------------- -------------
Cash and cash equivalents at end of
period $ 45,724 $ 37,712
============= =============
CONTACT:
McCormick & Company, Incorporated
Corporate Communications:
John McCormick
410-771-7110
john_mccormick@mccormick.com
or
Investor Relations:
Joyce Brooks
410-771-7244
joyce_brooks@mccormick.com
SOURCE:
McCormick & Company, Incorporated