McCormick Reports Record Sales and Net Income for First Quarter
Sales for the quarter were $519 million, an increase of 4% versus the first quarter of 2001. Excluding the impact of foreign exchange, sales increased 5% in 2002. Gross profit margin for the quarter was 35.7%, 1.7 percentage points above last year. The gross profit margin increase was due to continued success in shifting sales to higher-margin, more value-added products, as well as higher volumes, favorable raw material costs, global procurement initiatives and efforts to improve efficiencies.
Earnings per share for the first quarter were $0.48. Excluding goodwill amortization, earnings per share for the first quarter of 2001 were $0.43. Compared to this result, the $0.48 earned in the first quarter of 2002 is an increase of 12%. Special charges did not have a significant impact on either period. The primary drivers of the first quarter earnings improvement were $0.04 from operations and $0.03 from interest rate, partially offset by lower income from unconsolidated operations and the effect of more shares outstanding.
Consumer Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $237,279 $228,187
Operating income 35,232 27,029
Operating income, excluding special
charges and goodwill amortization 35,570 29,915
For the first quarter, sales for McCormick's consumer business rose 4% above
2001. Excluding the net impact of foreign exchange, sales rose 6%. Sales
benefited from core category growth, new products, recent new business gains
and, in the U.S., from customer purchases in advance of a price increase. In
local currency, consumer sales rose 10% in the Americas, declined 1% in Europe
and rose 8% in Asia. Operating income for the consumer business was $35 million.
Excluding special charges and goodwill amortization for both years, operating
income for 2002 was $36 million versus $30 million in 2001, an increase of 19%.
On this same basis, operating income margin for the quarter was 15.0% compared
to 13.1% last year as a result of higher sales, favorable raw material costs and
increased efficiencies.
Industrial Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $244,482 $226,234
Operating income 23,253 19,332
Operating income, excluding special
charges and goodwill amortization 23,277 19,642
For the first quarter, industrial sales increased 8% versus last year. Excluding
the net impact of foreign exchange, industrial sales increased 9%. Higher volume
drove the increase. In local currency, industrial sales increased 12% in the
Americas, decreased 6% in Europe and increased 13% in Asia. In the Americas,
sales to restaurant customers and warehouse clubs, and sales of snack seasonings
were particularly strong. In Europe, the decline occurred primarily in
ingredients sales, versus higher-margin, more value- added products. Operating
income for the quarter was $23 million. Excluding special charges and goodwill
amortization for both years, operating income for 2002 was $23 million versus
$20 million in 2001, an increase of 19%. On this same basis, operating income
margin improved to 9.5% from 8.7% last year, primarily from the shift in sales
to more higher-margin, value-added products, higher volumes and effective cost
reduction initiatives.
Packaging Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $37,145 $45,026
Operating income 2,889 5,342
Operating income, excluding special
charges and goodwill amortization 2,894 5,387
In its outlook for 2002, the Company forecast difficult results from its
packaging business through the first half of the year. As projected, the
packaging business reported third party sales for the quarter down 18% versus
last year. Operating income (including intersegment business) for the first
quarter of 2002 was $3 million versus $5 million in 2001. The state of the
economy has caused a decline in demand for products supplied to the health and
personal care industry. Actions have been taken to adjust production activities,
including a reduction in our workforce.
Chairman's Comments
Commented Robert J. Lawless, Chairman, President & CEO, "McCormick had great success in growing sales and margins for the quarter. In our consumer business, we grew worldwide sales through core products, new products and new customers, and benefited in the U.S. from customer purchases in advance of a price increase. The growth in our industrial business came from several sectors - restaurant, snack seasonings, warehouse clubs. Our businesses in Asia continue to prosper with sales for the quarter increasing 11%. Improvement in product mix and cost reduction has driven our overall margin improvement, despite higher costs in areas such as employee benefits and insurance.
"Our financial goals for fiscal year 2002 have not changed. We continue to project 4-6% sales growth and 9-11% increase in earnings per share. As a consequence of the customer purchases in advance of our U.S. consumer business price increase, we are likely to experience lower sales for that part of our business in the second quarter. Similarly, compared to last year, earnings per share may be flat or slightly up for the second quarter. To summarize, we expect our first half results for sales and earnings per share growth to be in line with our stated 2002 goals.
"Five years ago, the Company emerged from a price war in our consumer business. At that time, we focused our resources on key strategies to grow the sales and profitability of both of our food businesses - consumer and industrial. During this time period, we grew sales at a compound annual growth rate of 6% and earnings per share at a 16% rate. Today, our Company has a strong balance sheet, sound fundamentals and momentum for the future.
"As we look to the next five years, we have outlined three major strategies which build upon the successes of our past strategies. First, grow consumer business sales by leveraging our brands through accelerated innovation, brand acquisition and geographic expansion. Second, grow our industrial business sales, expanding our global flavor and food service business by enhancing our leadership position in flavors, seasonings and condiments. Third, improve margins by optimizing our global supply chain and implementing Beyond 2000. With Beyond 2000, create coordinated processes worldwide using technologies and systems, establish McCormick as a premier supplier of choice, and enable collaboration with customers.
"These strategies and our ability to execute give us the confidence to set several financial objectives through 2006. We expect to grow sales 3-7%, including sales from acquisitions. We project annual increases in operating profit of 8-10% and in earnings per share of 10-12%. In 2002, we will complete the major portion of capital expenditures related to Beyond 2000. Following this period of investment in Beyond 2000, our outlook for free cash flow is to reach $100 million in 2003 and achieve further increases through 2006. We expect EVA improvement to exceed $10 million annually over the next five years.
"We believe these strategies will guide us to continued growth and that these financial goals will maintain our position as one of the top performing food companies.
"We are in a great business - providing flavors no matter where, when or what foods are being enjoyed. I am confident that McCormick has the talent, energy and focus to achieve our goals for 2002 and the future, and to continue to deliver shareholder value."
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 11:00 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
02/28/2002 02/28/2001
Net sales $518,906 $499,447
Cost of goods sold 333,655 329,818
Gross profit 185,251 169,629
Gross profit margin 35.7% 34.0%
Selling, general &
administrative expense 132,786 124,690
Special charges 367 0
Operating income 52,098 44,939
Interest expense 11,063 14,287
Other income (1,047) (973)
Income before income taxes 42,082 31,625
Income taxes 13,246 10,468
Net income from consolidated
operations 28,836 21,157
Income from unconsolidated
operations 5,678 6,079
Minority interest (673) (650)
Net income $33,841 $26,586
Basic earnings-per-share:
Net income $0.49 $0.39
Net income excluding goodwill $0.49 $0.44
Diluted earnings-per-share:
Net income $0.48 $0.38
Net income excluding goodwill $0.48 $0.43
Average shares outstanding - basic 69,335 68,505
Average shares outstanding -
assuming dilution 70,671 69,260
Note 1: In connection with its adoption of EITF 01-09, the Company has
reclassified certain 2001 marketing expenses as a reduction of sales.
Concurrent with the adoption of EITF 01-09, the Company has also
reclassified certain 2001 expenses from selling, general and
administrative expense to cost of goods sold. Classification is
consistent between 2001 and 2002.
Note 2: The Company adopted SFAS No. 141 and 142 as of December 1, 2001.
The net income excluding goodwill reflects what earnings per share would
have been had the accounting principles been adopted at the beginning of
2001.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands)
02/28/2002 02/28/2001
Assets
Cash $62,181 $31,292
Receivables 269,894 264,118
Inventories 281,882 284,956
Prepaid allowances 125,348 116,260
Property, plant and equipment, net 442,555 381,766
Other assets 636,825 610,734
Total assets $1,818,685 $1,689,126
Liabilities and shareholders' equity
Short-term borrowings $296,136 $335,933
Other current liabilities 443,848 398,910
Long-term debt 454,135 454,022
Other liabilities 147,578 114,595
Shareholders' equity 476,988 385,666
Total liabilities and
shareholders' equity $1,818,685 $1,689,126
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SOURCE McCormick & Company, Incorporated
CONTACT: McCormick Corporate Communications, +1-410-771-7310 URL: http://www.mccormick.com http://www.prnewswire.com
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