McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported strong increases in sales and profit for the second quarter of fiscal year 2011. The Company adjusted its 2011 financial outlook to reflect the impact of recently announced agreements to acquire a leading flavor brand in Poland and a majority interest in a joint venture in India.
- In the second quarter, the Company increased sales 11%. In local currency, the sales increase was 8%. Earnings per share rose 12% to $0.55.
- Projected CCI cost savings are now expected to be at least $45 million in 2011.
- The Company expects to achieve $2.74 to $2.79 earnings per share for fiscal year 2011, which includes estimated transaction costs related to recent announcements of an acquisition and a joint venture.
Alan D. Wilson, Chairman, President and CEO, commented, ?We were pleased to report double-digit increases in both sales and profit this quarter. We achieved a strong performance in both our consumer and industrial segments through new products, increased distribution and effective brand marketing. Our profit performance demonstrates our ability to offset steep cost increases with a combination of pricing actions and cost savings from our Comprehensive Continuous Improvement program. CCI is our on-going initiative to improve productivity and reduce costs throughout our organization. McCormick employees are highly engaged in this effort and we now expect to deliver at least $45 million of CCI cost savings in 2011.
?We are also executing well against our strategy to expand our presence in emerging markets with our current businesses and through acquisitions. Our business in China has particularly strong growth driven by new product innovation and expanded distribution. In early June we announced an agreement to enter into a joint venture to market and sell in India, Kohinoor, a leading brand of basmati rice and other food products. Earlier this week we announced an agreement to acquire Kamis, a leading brand of spices, seasonings and mustard in Poland. We are excited about potential growth opportunities for both of these businesses and with these additions to our portfolio, expect more than 12% of 2012 sales to come from emerging markets, up from 9% in 2010.?
McCormick?s second quarter sales rose 11% and increased 8% in local currency. Pricing actions, taken in response to increased raw and packaging material costs, added 5% to sales, while favorable volume and product mix drove a 3% increase. Consumer business sales rose 10%, which included 3% from favorable currency exchange rates. For this business segment, both pricing and increased volume and product mix added to sales. McCormick grew volume and product mix of its consumer business through new product introductions, brand marketing support and new distribution in a number of countries including the U.S., Canada, France and China. Industrial business sales rose 11% and increased 8% in local currency with increases in volume and product mix, as well as pricing. Customer demand for McCormick?s industrial products, including new items, rose in each of McCormick?s three geographic regions, led by a 10% increase in volume and product mix in the Asia/Pacific region. Across both segments, the Company has grown sales 7% and in local currency, sales have increased 5% through the first half.
During 2011, pricing actions and cost savings from CCI are expected to offset increased material costs. Even though material costs have increased beyond the Company?s initial projection, McCormick now expects to achieve at least $45 million of cost savings from CCI in 2011, up from its initial projection of at least $40 million. The Company is offsetting the dollar impact of higher costs with pricing actions and CCI cost savings. However, the net effect of these factors caused gross profit as a percentage of sales to decline in the second quarter when compared to the year-ago period, and the Company expects a decline in gross profit margin to continue through the second half of 2011.
Earnings per share rose 12% to $0.55 from $0.49 in the second quarter of 2010. This $0.06 per share increase was driven by higher operating income. Year to date, cash flow from operations was $36 million, compared to $65 million in the year-ago period due to higher inventory. Inventory rose primarily as a result of the higher cost of materials, the impact of currency exchange rates, and raw material positions taken in order to assure a steady supply of product. The Company is currently implementing a new inventory management process, which is expected to improve inventory levels.
During the month of June, McCormick made excellent progress with its acquisition strategy. Early in the month, an agreement was signed with Kohinoor Foods Limited for an 85% interest in a joint venture to market a leading brand of basmati rice and other food products in India. McCormick will consolidate sales and profit from Kohinoor in its financial results, with a minority interest reduction to net income for the 15% of the business it does not own. On June 28th, McCormick announced an agreement to acquire 100% of the shares of Kamis S.A., which manufactures and markets a leading brand of spices, seasonings and mustard in Poland with annual sales of approximately $105 million. With an estimated completion of these two agreements by the end of McCormick?s third quarter, only a portion of annual sales will be recorded in the Company?s 2011 financial results. Profit from these businesses will be minimal in 2011 due to integration costs and initial investments in growth, but is expected to be $0.07 to $0.09 accretive to earnings per share in 2012. In 2011, the Company expects to record $9 million in transaction related costs, of which $2 million was recorded in the second quarter with the remaining $7 million expected to lower earnings per share in the third quarter by $0.05.
McCormick has adjusted its financial outlook for 2011 to reflect these two agreements. The Company has raised its projected range of sales growth in local currency to 6 to 8%, to include 1% of incremental sales from Kohinoor and Kamis. In addition, the sales impact of favorable currency exchange rates is now estimated to be 2%. Earnings per share are expected to be $2.74 to $2.79. This is a reduction of $0.06 from the previous earnings per share outlook to reflect the $9 million in transaction costs related to Kohinoor and Kamis. Third quarter earnings per share will be affected by $7 million of these costs with an estimated $0.05 reduction to earnings per share. Also in the third quarter of 2011, McCormick is investing in its brands with at least $6 million of incremental marketing which includes an emphasis on brand value, a U.S. campaign behind Hispanic products and advertising for the Zatarain?s brand.
About McCormick
McCormick & Company, Incorporated is a global leader in flavor. With more than $3 billion in annual sales, the Company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry ? retail outlets, food manufactures and foodservice businesses.
Every day, no matter where or what you eat, you can enjoy food flavored by McCormick. McCormick brings passion to flavor?!
To learn more visit?www.mccormickcorporation.com.
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