McCormick Reports Record Sales and Income for First Quarter
Sales for the quarter were $555 million, an increase of 7% versus the first quarter of 2002. Sales benefited from favorable foreign exchange rates, which accounted for 4% of the increase. Earnings per share for the first quarter were $0.25 compared to $0.24 in the first quarter of 2002. In 2003, an increase in income from consolidated operations was partially offset by a decrease in unconsolidated income from joint ventures. Specifically, the Company's joint venture in Mexico experienced profit pressure from aggressive competition, higher raw material costs and unfavorable foreign exchange. In summary, the primary drivers of the increase in first quarter earnings per share were $0.03 from operations, less a $0.02 decline in income from unconsolidated operations.
Consumer Business
(in thousands) Three Months Ended
2/28/03 2/28/02
Net sales $263,692 $237,993
Operating income 38,435 36,343
Operating income, excluding special
charges 38,581 36,624
For the first quarter, sales for McCormick's consumer business rose 11% when
compared to 2002. Excluding the net impact of foreign exchange, sales rose 4%.
Sales benefited from core category growth as well as new products. In local
currency, consumer sales rose 3% in the Americas, 7% in Europe and declined 4%
in the Asia/Pacific region. In the Americas, consumer sales in the first quarter
of 2003 followed an outstanding result in the first quarter of 2002 when sales
increased 10%. This increase in 2002 was due largely to U.S. customer purchases
in advance of a price increase. In addition, 2003 sales in the U.S. were
affected by a reduction in customer trade inventories, higher promotions related
to new product introductions and the late timing of the Easter holiday in 2003.
In the Asia/Pacific region, the Company's program in China to de-emphasize
certain low margin products is improving margins in that market but lowering
sales as it is implemented.
Operating income for the consumer business, excluding the impact of special charges, was $39 million, an increase of 5% for the first quarter of 2003. This follows an increase of 19% for this business in the first quarter of 2002. Profitability in 2003 was impacted by a lower percentage increase in our U.S. consumer sales as well as less favorable production costs. In addition, the Company increased the advertising and promotional support of its branded products during the quarter.
Industrial Business
(in thousands) Three Months Ended
2/28/03 2/28/02
Net sales $249,162 $243,768
Operating income 23,196 22,286
Operating income, excluding special
charges 23,168 22,367
In recent quarters, industrial business sales have fluctuated as a result of
order timing and customer promotions. In the third quarter of 2002, sales rose
2% followed by a 6% increase in the fourth quarter. For the first quarter of
2003, industrial sales increased 2% versus last year. Excluding the net impact
of foreign exchange, industrial sales were even with the prior year. In local
currency, industrial sales decreased 2% in the Americas and increased 9% in
Europe and 5% in the Asia/Pacific region. In the Americas, industrial sales in
the first quarter of 2003 followed a 12% increase in the first quarter of 2002.
In 2003, strong sales to food service customers in the U.S. were more than
offset by lower sales of bulk ingredients and snack seasonings. The increase in
Europe was driven by sales from the Uniqsauces business acquisition. Sales in
the Asia/Pacific region continue to be fueled by alliances with major
multinational customers.
In the first quarter of 2003, industrial business operating income increased 4% following a year ago increase of 19% in the first quarter of 2002. This year's increase benefited from the shift in sales to more higher- margin, value-added product lines.
Packaging Business
(in thousands) Three Months Ended
2/28/03 2/28/02
Net sales $42,294 $37,145
Operating income 3,731 3,203
Operating income, excluding special
charges 3,689 3,208
Sales for the packaging business showed continued improvement in the first
quarter with an increase of 14%. Demand for tubes is strengthening, and the
Company is having success gaining new products with both new and existing
customers. Actions taken to reduce production costs have increased profitability
of the packaging business. As a result of the sales increase and the
effectiveness of these actions, operating income (including intersegment
business and excluding special charges) for the first quarter of 2003 rose 15%.
Chairman's comments
Robert J. Lawless, Chairman, President & CEO, commented on the first quarter, "Despite tough comparisons to the first quarter of 2002 and the challenge from our joint venture in Mexico, we are pleased to again report record sales, income and earnings per share in this first quarter of our 2003 fiscal year.
"As we look ahead to the next three quarters, we are encouraged by recent successes and several key initiatives:
-- Progress with supply chain projects and utilization of our Beyond
2000 capabilities to achieve significant reductions in cost and
working capital.
-- Rollout of a great lineup of new consumer products and supporting the
launch with advertising and promotions.
-- New distribution gains in the U.S. with grocery retailers as well as
one of the leading dollar store chains.
-- New product "wins" with our industrial customers - most recently a
salad dressing for a major restaurant chain, and for leading food
companies, a snack chip seasoning and seasoning blend for cereal.
-- Rationalization of our consumer products in China to improve
operating margins in this fast growing market.
"For the full year, we remain confident that we will grow sales 3-7% and
earnings per share 9-11%. In fact, the rebound in demand for packaging, the
favorable foreign exchange environment, our Uniqsauces acquisition and recent
distribution gains are likely to place McCormick at the top end of our sales
range.
"Financial results in the first three quarters of 2002 were affected by several factors. The first two quarters of 2002 were favorably impacted by customer purchases in advance of a price increase and in advance of our Beyond 2000 implementation. This was followed by lower results in the third quarter. When compared to these prior year earnings per share results, most of our 2003 increase in earnings per share is expected to occur in the second half.
"Based on world events this past week, we recognize that we are in a period of uncertainty with the global economy and our own business. At McCormick, we have minimal sales in the Middle East and have taken precautions to add inventory of certain spices and herbs sourced from that area.
"We are proud of our achievements and the shareholder value that we have created these past five years. A milestone was reached last week when Standard & Poor's announced the addition of McCormick to its S&P 500 index, placing us among the leading companies in the U.S. We remain enthusiastic about the pace of activity and opportunities for growth at McCormick. While the Company has been challenged in recent years with situations like the one we now face in Mexico, we have demonstrated success in meeting our objectives for sales and earnings growth. I am confident that the strength in our core businesses, recent distribution gains and key initiatives to drive growth will enable us to meet this challenge in 2003 and reach our objectives for the year."
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 10:00 a.m. EST. 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 amounts 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 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. In addition, the packaging group manufactures and markets specialty plastic bottles and tubes for personal care and other industries.
First Quarter Report McCormick & Company, Incorporated
Consolidated Income Statement (Unaudited)
(In thousands except per-share data)
Three Months Ended
02/28/2003 02/28/2002
Net sales $ 555,147 $ 518,906
Cost of goods sold 355,307 333,655
Gross profit 199,840 185,251
Gross profit margin 36.0% 35.7%
Selling, general & administrative
expense 140,880 132,641
Special charges 78 367
Operating income 58,882 52,243
Interest expense 10,516 11,063
Other income, net (641) (1,047)
Income from consolidated operations
before income taxes 49,007 42,227
Income taxes 15,340 13,246
Net income from consolidated
operations 33,667 28,981
Income from unconsolidated
operations 2,847 5,678
Minority interest (1,375) (818)
Net income $ 35,139 $ 33,841
Earnings per common share - basic $0.25 $0.24
Earnings per common share - assuming
dilution $0.25 $0.24
Average shares outstanding - basic 139,882 138,671
Average shares outstanding - assuming
dilution 142,461 141,343
First Quarter Report McCormick & Company, Incorporated
Consolidated Balance Sheet (Unaudited)
(In thousands)
02/28/2003 02/28/2002
Assets
Current assets
Cash $ 21,002 $ 62,181
Receivables 304,532 269,894
Inventories 346,805 281,882
Prepaid expense and other current
assets 38,857 31,282
Total current assets 711,196 645,239
Property, plant and equipment, net 489,597 442,555
Intangible assets, net 541,023 456,452
Prepaid allowances 113,909 125,348
Investments and other assets 128,296 149,091
Total assets $ 1,984,021 $ 1,818,685
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $ 207,966 $ 296,136
Trade accounts payable 187,033 184,269
Other accrued liabilities 274,321 259,579
Total current liabilities 669,320 739,984
Long-term debt 454,113 454,135
Other long-term liabilities 220,964 147,578
Total liabilities 1,344,397 1,341,697
Shareholders' equity
Common stock 236,220 217,094
Retained earnings 458,845 358,873
Accumulated other comprehensive
income (55,441) (98,979)
Total shareholders' equity 639,624 476,988
Total liabilities and
shareholders' equity $ 1,984,021 $ 1,818,685
SOURCE McCormick & Company, Incorporated
CONTACT: McCormick & Company Corporate Communications, +1-410-771-7310 URL: http://www.mccormick.com