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McCormick Q1 Profit Up 2%; Consumer Segment Posts Strong 7% Growth

Posted: April 2, 2013

McCormick & Co.’s fiscal first-quarter net income rose as sales climbed 3% amid strong growth in its consumer business thanks to increased consumer demand for flavor.

However, the company's industrial business slipped during the quarter. Still, McCormick backed its 2013 overall expectation to increase total sales 3% to 5% and achieve earnings of $3.15 to $3.23 a share.

For the quarter ended February 28, McCormick said its net income rose 2% to $76 million, or 57 cents a share, from $74.5 million, or 56 cents a share, a year earlier.

First-quarter sales rose 3% to $934.4 million, led by 7% growth in consumer business sales on strong volume and product mix such as innovation in spices and seasonings, recipe mixes and market-leading regional brands such as Zatarain's in the U.S. and Vahiné in France.

For the industrial business, sales declined 2% during the quarter compared to a year ago, and in local currency, sales fell 3%. Volume and product mix fell 5% during the quarter, largely due to weaker demand from quick-service restaurants and comparison to a strong growth rate in the first quarter of 2012. Industrial business sales fell in the Americas and Asia-Pacific, although the company expects demand in quick-service restaurants in the Americas and China to improve in the next few quarters.

"Our industrial sales in China are between 2% and 3% of our total sales, so it's significant. It's been a good growing business, but it's not an overwhelmingly growing business," McCormick CEO and Chairman Alan D. Wilson said during a first-quarter conference call with investors. 

"I think what's happening with overall restaurant sales and we're seeing a bifurcation, I think, across a lot of categories with how consumers are spending. Consumers [who] are under stress are certainly experiencing the impact of the increased spike attacks [of] fuel prices, as well as a whole lot of other stresses, and they're not spending," Wilson added. 

Meanwhile, consumer sales in the Americas rose 7% during the quarter, with minimal impact from foreign currency exchange. Consumer sales in Europe Middle East Africa (EMEA) region rose 4% and jumped 2% in local currency. First-quarter sales in the Asia-Pacific region grew 13%, and in local currency the increase was 15% (China was the largest contributor to this increase).

Wilson said on the call that in the U.S., McCormick is finding success extending varieties of its gourmet recipe mixes with flavors such as smoked paprika chicken tacos and Tuscan beef stew. In EMEA, the company's Vahiné brand of dessert items, Wilson said, was the clear category leader, and in Asia-Pacific, the company has already gained the number 2 spot in the wet marinade category at a major Australian retailer.

Another continued avenue of growth for the company has been acquisitions, according to Wilson. "I'm pleased with the progress on the regulatory approval for the purchase of Wuhan Asia-Pacific Condiments. We have a few more steps, and we expect to complete this transaction mid year," he said.

For the second quarter of 2013, McCormick plans to increase brand marketing support about $5 million. Also in the second quarter, McCormick expects the continuation of higher material costs and an unfavorable impact of about $5 million from increased retirement benefit expense. As a result of the unfavorable impact of these factors, the company expects second-quarter earnings comparable to 60 cents a share, which the company reported in the second quarter of 2012.