McCormick Reports Record Sales and Earnings for Third Quarter
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SPARKS, Md., Sep 24, 2003 /PRNewswire-FirstCall via COMTEX/ -- McCormick & Company, Incorporated (NYSE: MKC), today reported record sales, net income and earnings per share for the third quarter ended August 31, 2003.
During the third quarter, the Company sold its packaging business and U.K. brokerage business at a net gain of $10 million. As a result, current and prior period sales and related expenses for these discontinued operations have been reclassified and reported as "Income from discontinued operations."
In the third quarter, sales from continuing operations reached $558 million, a 17% increase above the third quarter of 2002. Sales benefited from the 2003 acquisition of the Zatarain's and Uniqsauces businesses, which accounted for 8% of the increase. Higher volumes, particularly in the U.S. consumer business, added 5%, and favorable foreign exchange rates contributed an additional 4% to sales.
Earnings per share from continuing operations for the third quarter were $0.28 compared to $0.24 in the third quarter of 2002, an increase of 17%. In addition to strong sales performance, gross profit margin increased to 38.1% for the quarter due primarily to the growth in consumer business sales. Operating expenses were adversely impacted by higher benefit costs and distribution expense. In the third quarter, the Company increased promotion and advertising support behind new products and seasonal items. Special charges, primarily related to the consolidation of facilities in Canada, were $1.3 million, which had a negative impact of $0.01 on earnings per share. In the third quarter, the competitive position of the Company's joint venture in Mexico improved following a difficult performance in the first half. As a result, third quarter income from unconsolidated operations equaled last year's level. In the third quarter, the $0.04 increase in earnings per share from continuing operations was a direct result of increased operating income.
Consumer Business
(in thousands) Three Months Ended Nine Months Ended
8/31/03 8/31/02 8/31/03 8/31/02
Net sales $271,634 $210,870 $755,693 $649,059
Operating income 43,827 31,679 117,487 102,603
For the third quarter, sales from continuing operations for McCormick's consumer business rose 29% compared to 2002. The acquisitions of Zatarain's and Uniqsauces contributed 14% of sales increase, and the impact of foreign exchange added another 6%. In local currency, consumer sales rose 32% in the Americas, 9% in Europe and 6% in the Asia/Pacific region. Sales from the Company's acquisition of Zatarain's accounted for about one-half of the increase in the Americas. Also contributing to this increase was a comparison to a sales decline of 4% in the third quarter of 2002. This decline resulted from higher customer purchases in the second quarter of 2002 in advance of the Company's implementation of new systems under the Beyond 2000 program. For the consumer business in Europe, sales from the Uniqsauces acquisition drove the increase for the quarter. In all regions, strong distribution of new products contributed to sales growth.
Operating income from continuing operations for the consumer business was $43.8 million for the third quarter of 2003, an increase of 38%. A portion of the higher operating costs affected the consumer business and in particular, the investment in brand advertising and promotion increased 27% in support of new products and seasonal items.
Industrial Business
(in thousands) Three Months Ended Nine Months Ended
8/31/03 8/31/02 8/31/03 8/31/02
Net sales $285,978 $266,449 $815,280 $770,880
Operating income 28,230 29,794 81,026 77,973
For the third quarter of 2003, industrial sales increased 7% versus the same period last year. The acquisition of Uniqsauces in 2003 contributed 3% of sales increase, and the net impact of foreign exchange added another 3%. In local currency, industrial sales were unchanged in the Americas and increased 27% in Europe and 7% in the Asia/Pacific region. In the Americas, an increase in sales of new and existing products to quick service restaurants was offset by lower sales to food processors. A portion of this sales reduction related to lower pricing in response to a decrease in raw material costs. Sales to broadline distributors and warehouse clubs were relatively flat in the quarter with reduced demand. New products in the pipeline, as well as improved demand for product supplied through broadline distributors and warehouse clubs, are expected to improve sales performance in the fourth quarter. In Europe, nearly two-thirds of the increase was driven by sales from Uniqsauces. The remaining increase was based on strong sales to restaurant customers and snack seasoning products.
In the third quarter of 2003, industrial business operating income was $28.2 million, a reduction of 5% from year-ago results. Operating income was impacted by the higher operating expenses during the quarter, the higher cost of vanilla, and a less favorable mix of sales. Year-to-date, operating income for the industrial business has increased 4% versus the prior year.
Chairman's comments
Robert J. Lawless, Chairman, President & CEO, commented, "In the third quarter, we acquired Zatarain's, a growing business that is a great fit for McCormick. We also completed the sale of two significant businesses that were non-strategic for the Company. We recorded a net gain on these sales, and the proceeds were used to pay down debt associated with the acquisition of Zatarain's. The net result of these actions is that all of McCormick is now fully focused on flavor.
"Year-to-date results are tracking well against our financial objectives for 2003. With the strength in our consumer business, recent acquisitions and positive foreign exchange, we have achieved an 11% sales increase for the first three quarters and now expect to grow 2003 sales 9-11%, versus our prior projection of 8-10%. Our goal is to increase earnings per share from continuing operations 10-12%, and we expect to be at the upper end of this range with 2003 earnings per share from continuing operations in the $1.35- $1.37 range. Through the first three quarters, we are tracking well toward this goal with earnings per share from continuing operations up 13%.
"The fourth quarter is our largest quarter -- a time when consumers stock up for the holidays on McCormick, Schwartz, Ducros and Club House brand products in our key markets throughout the world. We have promotion and advertising programs lined up which feature both new items and traditional favorites. With this momentum, 2003 is shaping up to be another record year for the Company.
"Our earnings performance and strong balance sheet are generating significant cash flow to fund future acquisitions and other business development opportunities. In August we also resumed our share repurchase program. McCormick's most recent repurchase program ($250 million) was announced March 1999 and is expected to be completed by mid-2004. Yesterday, the Board approved a new repurchase program to buy back up to $300 million of outstanding stock. Together, acquisitions, business development, share repurchase and dividend payments are delivering increased value to McCormick shareholders and reflect management's confidence in the future of our business."
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 http://www.mccormick.com. Click on "Company Information" then "Investor Information," 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 charges, 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 currency rate fluctuations. 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
08/31/2003 08/31/2002 08/31/2003 08/31/2002
Net sales $557,612 $477,319 $1,570,973 $1,419,939
Cost of goods sold 345,131 302,653 974,587 891,731
Gross profit 212,481 174,666 596,386 528,208
Gross profit margin 38.1% 36.6% 38.0% 37.2%
Selling, general &
administrative expense 148,403 117,920 420,326 367,911
Special charges 1,349 2,786 1,942 4,692
Operating income 62,729 53,960 174,118 155,605
Interest expense 10,027 9,611 29,216 29,570
Other (income)/expense,
net (703) (359) (7,317) (1,034)
Income from consolidated
operations before income
taxes 53,405 44,708 152,219 127,069
Income taxes 17,098 14,257 46,988 39,420
Net income from consolidated
operations 36,307 30,451 105,231 87,649
Income from
unconsolidated
operations 4,401 4,376 9,728 14,195
Minority interest (628) (875) (2,954) (2,454)
Net income from continuing
operations 40,080 33,952 112,005 99,390
Discontinued operations (net
of tax):
Net income from
discontinued operations 1,665 1,225 4,838 3,241
Gain on sale of
discontinued operations 9,561 - 9,561 -
Net income $51,306 $35,177 $126,404 $102,631
Earnings per common share:
Basic:
Continuing operations $0.29 $0.24 $0.80 $0.71
Discontinued
operations $0.01 $0.01 $0.03 $0.02
Gain on sale of
discontinued
operations $0.07 $ - $0.07 $ -
Net income $0.37 $0.25 $0.91 $0.74
Diluted:
Continuing operations $0.28 $0.24 $0.79 $0.70
Discontinued
operations $0.01 $0.01 $0.03 $0.02
Gain on sale of
discontinued
operations $0.07 $ - $0.07 $ -
Net income $0.36 $0.25 $0.89 $0.72
Average shares outstanding -
basic 139,447 139,906 139,549 139,388
Average shares outstanding -
assuming dilution 143,087 142,762 142,658 142,288
Third Quarter Report McCormick & Company, Incorporated
Consolidated Balance Sheet (Unaudited)
(In thousands)
08/31/2003 08/31/2002
Assets
Current assets
Cash and cash equivalents $12,184 $23,329
Accounts receivable, net 283,695 259,733
Inventories 387,719 297,775
Prepaids and other current assets 29,591 29,962
Current assets of discontinued
operations - 52,760
Total current assets 713,189 663,559
Property, plant and equipment, net 419,842 394,250
Goodwill and intangible assets, net 673,321 501,940
Prepaid allowances 97,358 116,153
Investments and other assets 120,504 149,949
Non-current assets of discontinued
operations - 79,341
Total assets $2,024,214 $1,905,192
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $204,223 $260,477
Trade accounts payable 167,926 163,145
Other accrued liabilities 282,072 274,945
Current liabilities of discontinued
operations - 23,716
Total current liabilities 654,221 722,283
Long-term debt 450,011 450,911
Other long-term liabilities 200,545 143,952
Long-term liabilities of discontinued
operations - 3,163
Total liabilities 1,304,777 1,320,309
Shareholders' equity
Common stock 252,964 229,294
Retained earnings 501,389 395,724
Accumulated other comprehensive
income (34,916) (40,135)
Total shareholders' equity 719,437 584,883
Total liabilities and
shareholders' equity $2,024,214 $1,905,192
SOURCE McCormick & Company, Incorporated
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
http://www.mccormick.com