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McCormick Reports Strong Q3 Financials
Posted: September 30, 2011
McCormick & Company reported significant sales growth, increased operating income and earnings per share of $0.69 for the third quarter of fiscal year 2011. For the fiscal year, the company noted its continued expectation to grow sales 6–8% in local currency and achieve earnings per share of $2.74 to $2.79, and in the third quarter, the company increased sales 16% (in local currency, 11%). Additionally, the company also declared a quarterly dividend of $0.28 per share on its common stocks, payable October 24 to shareholders of record as of October 10.
The company recently completed its acquisition of Polish spices, seasonsings and mustard company Kamis and formed a joint venture with Indian company Kohinoor, marking its intention to focus on growth in emerging markets, as well as introduce an expanded portfolio of products in mature markets. However, the company also worked against price increases for materials such as pepper and cinnamon, using its CCI cost-savings program to stay on track to achieve its 2011 profit goals.
Alan D. Wilson, McCormick & Company chairman, president and CEO, commented, "We were pleased to report strong sales growth and solid profit performance this quarter. Sales grew at a double-digit rate in both our consumer and industrial segments driven by new products, distribution gains and an increased investment in brand marketing, as well as pricing actions taken in response to higher costs.
"A key growth strategy for McCormick is to expand through acquisitions. First announced in June, we recently completed the acquisition of Kamis SA, a leading brand of spices, seasonings and mustard in Poland. We also completed the formation of a new joint venture to market and sell in India, with Kohinoor, a leading brand of basmati rice and other food products. These businesses provide excellent growth opportunities in fast-growing markets. In the U.S., we expanded our portfolio of products that deliver flavor with the acquisition of Kitchen Basics. This $38 million investment gives McCormick a leading position in liquid stock, a product that adds depth and flavor to many dishes.
"As we head into our fourth quarter and fiscal year 2012, McCormick is facing further cost increases. These include higher costs for spices and herbs, such as pepper and cinnamon, as well as other ingredients. We continue to respond to these increases with a combination of pricing actions and our CCI cost savings, and we are on-track to achieve our profit goal for 2011," he concluded.
The company grew its volume and product mix for the consumer business through new product introductions, brand marketing support and expanded distribution in a number of countries including the U.S., Canada, France and China. In addition, customers in the U.S. purchased an estimated $10 million of product in advance of a price increase effective in the fourth quarter of 2011. Industrial business sales rose 17% and increased 12% in local currency with higher volume and product mix, as well as pricing actions. Customer demand for McCormick's industrial products, particularly from quick service restaurants, was strong in each of McCormick's three geographic regions.
The company also continues to invest in the growth of its brands and in the third quarter of 2011 it increased marketing support by 27% when compared to the year ago period. Also in the third quarter of 2011, $1 million of transaction costs were recorded that related to the acquisition of Kamis and the Kohinoor joint venture.
McCormick reaffirmed its sales and profit goals for 2011, which include the impact of acquisition activity. Sales are expected to grow 6–8% in local currency, with an additional 2% expected from favorable currency exchange rates. Earnings per share are expected to be $2.74 to $2.79. While the projected range of earnings per share has not changed, the company now projects total transaction costs of $11 million related to Kamis and Kohinoor, which are expected to lower 2011 earnings per share $0.07.