McCormick Reports Double-Digit Earnings Growth on Strong Top Line Results
SPARKS, Md., Sept. 29 /PRNewswire-FirstCall/ -- McCormick & Company, Incorporated (NYSE: MKC), today reported record third quarter sales and earnings per share from continuing operations for the quarter ended August 31, 2004:
-- Sales increased 10% to $614 million
-- Earnings per share from continuing operations increased 18% to $0.33
-- Year-to-date, net cash flow from continuing operations reached $109
million compared to $19 million a year ago
Sales for the quarter were $614 million, an increase of 10% versus the third quarter of 2003. Higher volume, pricing and product mix contributed 7% of the increase, and 3% was added by favorable foreign exchange rates.
Earnings per share from continuing operations for the third quarter increased 18% to $0.33 compared to $0.28 in the third quarter of 2003. Compared to the prior year, gross profit margin was 39.0% versus 38.1%, and operating income margin was 12.1% versus 11.2%. The increase in operating income margin is net of higher advertising and research and development expenses. The Company used a portion of the proceeds from the settlement of the class action lawsuit received in the second quarter to fund these marketing and product development efforts.
Year-to-date, net cash flow from continuing operations was $109 million compared to $19 million in the prior year. For the third quarter, net cash flow from continuing operations rose to $42 million from $6 million a year ago. Contributing to the increases for the quarter and year were higher net income from continuing operations and a reduction in inventory that is being driven by supply chain initiatives.
Chairman's Comments
Robert J. Lawless, Chairman, President & CEO, commented, "We are extremely pleased with our third quarter results. These results are a good illustration of our strategy in action: to improve margins, invest in the business and grow sales and profits. With gross profit margin up .9 percentage points, we are creating fuel for initiatives that include marketing programs, product development and our B2K program. These types of investments are leading to higher sales and profits for both segments of our business. In the third quarter we increased consumer sales 12% and industrial sales 9%. Profits also increased with operating profit up 18% and net income from continuing operations up 15%.
"Our U.S. consumer business had exceptionally strong sales performance this quarter. We increased Zatarain's sales 23% and sales of other U.S. consumer products 12%. This performance was driven by the Zatarain's rice mixes including the Ready to Serve products introduced earlier in 2004, and higher sales of grinders, Hispanic products, GrillMates sauces and blended seasonings. Pricing actions, as a result of higher cost vanilla, also contributed to the increase. Market conditions in certain parts of Europe and the Asia/Pacific region are challenging. In these areas we are focused on maintaining share and employing multiple strategies for growth.
"Sales for the industrial business continued to strengthen with new products for quick service restaurants and improved sales of snack seasonings. In particular, sales of coating systems are up significantly year-to-date compared to 2003. Our ability to develop consumer-preferred flavors is paying off as we deliver winning products to our customers. In international markets, we are shifting our emphasis toward more value-added, higher-margin products. While this initiative is affecting near-term sales performance, in the long-term it will lead to improved profitability.
"Given our year-to-date results and current financial projections, we expect to increase sales for the full year at a low double-digit rate. Our earnings per share target of $1.51-$1.54 remains unchanged from our initial goal for 2004. Net cash flow from operations after net capital expenditures and dividends will exceed $100 million, and we are using the majority of this cash to repurchase shares during 2004.
"In summary, we have good momentum as we begin our most significant quarter of the year and are well positioned with our line-up of products and marketing support for the upcoming holiday season. Employees throughout the Company are working hard to deliver another record year for McCormick in 2004."
Business Segment Results
Consumer Business
(in thousands) Three Months Ended Nine Months Ended
8/31/04 8/31/03 8/31/04 8/31/03
Net sales $303,239 $271,634 $899,630 $755,693
Operating income 56,776 45,304 151,390 121,539
For the third quarter, sales for McCormick's consumer business rose 12% when compared to 2003. Higher volume added 6% to sales, price and favorable product mix added 3% and favorable foreign exchange added 3%. In the Americas, sales increased 13% with volume up 8% and price and product mix adding 5%. New product success and effective marketing drove higher volumes during the quarter as well as new distribution gained in 2003 with a major grocery retailer. In addition to these volume increases, pricing was higher in the Americas for vanilla products in response to higher vanilla bean costs. Consumer sales in Europe increased 9% for the quarter, with 8% due to favorable foreign exchange. Sales in this region were affected by more intense competitive conditions. In the Asia/Pacific region, consumer sales increased 2%. Foreign exchange added 5%, while a less favorable product mix in Australia and an emphasis on higher-margin products in China led to a net 3% decline in volume, price and product mix.
Operating income from continuing operations for the consumer business increased 25% to $57 million for the third quarter of 2004, despite a $3 million increase in advertising. This higher income was driven by strong sales performance, an emphasis on higher-margin products and cost reduction efforts. Operating income margin for the third quarter rose to 18.7% from 16.7% in the prior year.
Industrial Business
(in thousands) Three Months Ended Nine Months Ended
8/31/04 8/31/03 8/31/04 8/31/03
Net sales $310,305 $285,978 $882,439 $815,280
Operating income 31,207 27,872 85,478 80,074
For the third quarter of 2004, sales for McCormick's industrial business increased 9% when compared to 2003. Higher volume added 5%, favorable foreign exchange added 2% and price and favorable product mix added 2%. In the Americas, industrial sales rose 9% due to an 8% volume increase that was driven largely by new products. Industrial sales in Europe increased 10% for the quarter, with foreign exchange contributing 11%. A continued shift in emphasis to higher margin products resulted in reduced sales of certain lower margin products. In the Asia/Pacific region, industrial sales rose 2% in the third quarter, due to favorable foreign exchange. The elimination of certain bulk ingredient sales offset an increase in sales of more value-added products during the quarter.
In the third quarter of 2004, industrial business operating income increased 12% to $31 million, despite higher product research and development costs. This income was the result of higher sales, an emphasis on more value- added, higher-margin products and cost reduction efforts. Operating income margin for the third quarter rose to 10.1% from 9.7% in the prior year.
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 10:00 a.m. ET. The conference call will be web cast 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 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, global economic conditions, including interest and currency rate fluctuations, and inflation rates. 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 processing businesses 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
8/31/2004 8/31/2003 8/31/2004 8/31/2003
Net sales $613,544 $557,612 $1,782,069 $1,570,973
Cost of goods sold 374,385 345,131 1,089,298 974,587
Gross profit 239,159 212,481 692,771 596,386
Gross profit margin 39.0% 38.1% 38.9% 38.0%
Selling, general &
administrative expense 164,963 148,403 493,848 420,326
Special charges /
(credits) 195 1,349 (6,184) 1,942
Operating income 74,001 62,729 205,107 174,118
Interest expense 10,558 10,027 29,826 29,216
Other income, net (532) (703) (1,216) (7,317)
Income from consolidated
operations before income
taxes 63,975 53,405 176,497 152,219
Income taxes 19,769 17,098 54,538 46,988
Net income from consolidated
operations 44,206 36,307 121,959 105,231
Income from
unconsolidated
operations 3,222 4,401 8,309 9,728
Minority interest (1,232) (628) (3,113) (2,954)
Net income from continuing
operations 46,196 40,080 127,155 112,005
Discontinued operations (net
of tax):
Net income from
discontinued operations - 1,665 - 4,838
Gain on sale of
discontinued operations - 9,561 - 9,561
Net income $46,196 $51,306 $127,155 $126,404
Earnings per share - basic:
Net income from
continuing operations $0.34 $0.29 $0.93 $0.80
Net income from
discontinued operations $- $0.01 $- $0.03
Gain on sale of
discontinued operations $- $0.07 $- $0.07
Net income $0.34 $0.37 $0.93 $0.91
Earnings per share - diluted:
Net income from
continuing operations $0.33 $0.28 $0.90 $0.79
Net income from
discontinued operations $- $0.01 $- $0.03
Gain on sale of
discontinued operations $- $0.07 $- $0.07
Net income $0.33 $0.36 $0.90 $0.89
Average shares outstanding -
basic 136,961 139,447 137,341 139,549
Average shares outstanding -
diluted 141,687 143,087 141,984 142,658
Third Quarter Report McCormick & Company, Incorporated
Consolidated Balance Sheet (Unaudited)
(In thousands)
8/31/2004 8/31/2003
Assets
Current assets
Cash and cash equivalents $25,909 $12,184
Receivables, net 325,675 281,718
Inventories, net 377,187 387,719
Prepaid expenses and other current assets 45,728 29,591
Total current assets 774,499 711,212
Property, plant and equipment, net 454,756 419,842
Goodwill and intangible assets, net 725,940 673,321
Prepaid allowances 70,589 92,224
Investments and other assets 132,114 120,504
Total assets $2,157,898 $2,017,103
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $167,766 $204,223
Trade accounts payable 161,172 167,926
Other accrued liabilities 289,522 274,966
Total current liabilities 618,460 647,115
Long-term debt 496,274 450,011
Other long-term liabilities 211,512 181,306
Total liabilities 1,326,246 1,278,432
Minority interest 26,006 19,234
Shareholders' equity
Common stock 320,041 254,704
Retained earnings 449,192 499,919
Accumulated other comprehensive
income (loss) 36,413 (35,186)
Total shareholders' equity 805,646 719,437
Total liabilities and
shareholders' equity $2,157,898 $2,017,103
Third Quarter Report McCormick & Company, Incorporated
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
8/31/2004 8/31/2003
Cash flows from continuing operating
activities
Net income $127,155 $126,404
Net income from discontinued
operations - (4,838)
Gain on sale of discontinued
operations - (9,561)
Net income from continuing
operations 127,155 112,005
Adjustments to reconcile net
income from continuing operations
to net cash flow from continuing
operating activities:
Depreciation and amortization 53,427 46,953
Loss on sale of fixed assets 446 308
Income from unconsolidated
operations (8,309) (9,728)
Changes in operating assets and
liabilities (66,571) (146,943)
Dividends from unconsolidated
affiliates 2,400 16,278
Net cash flow from continuing
operating activities 108,548 18,873
Cash flows from continuing investing
activities
Acquisition of businesses - (199,517)
Purchase price adjustment - 50,007
Capital expenditures (45,132) (56,322)
Proceeds from sale of discontinued
operations - 138,261
Proceeds from sale of fixed assets 1,971 9,243
Net cash flow from continuing
investing activities (43,161) (58,328)
Cash flows from continuing financing
activities
Short-term borrowings, net 10,328 66,379
Long-term debt borrowings 50,088 -
Long-term debt repayments (16,394) (567)
Common stock issued 54,046 24,643
Common stock acquired by purchase (108,438) (40,570)
Dividends paid (57,755) (47,470)
Net cash flow from continuing
financing activities (68,125) 2,415
Effect of exchange rate changes on
cash and cash equivalents 3,506 6,377
Net cash flow from discontinued
operations - (4,485)
Increase (decrease) in cash and cash
equivalents 768 (35,148)
Cash and cash equivalents at
beginning of period 25,141 47,332
Cash and cash equivalents at end of
period $25,909 $12,184
SOURCE McCormick & Company, Incorporated
CONTACT: Corporate Communications: Mac Barrett, +1-410-771-7310 or
mac_barrett@mccormick.com, or Investor Relations: Joyce Brooks,
+1-410-771-7244 or joyce_brooks@mccormick.com, both of McCormick & Company
Web site: http://www.mccormick.com