McCormick Reports Second Quarter Results and Improved Outlook for 2007
SPARKS, Md.--(BUSINESS WIRE)--June 27, 2007--McCormick & Company, Incorporated (NYSE:MKC), today reported results for the second quarter ended May 31, 2007 and an improved outlook for the fiscal year.
- Increased sales 7%. Consumer business sales rose 6% and industrial business sales rose 9%. Achieved earnings per share of $0.31.
- On-track to improve gross profit margin by 0.5 percentage points in 2007.
- For fiscal year 2007, expects to increase earnings per share 9-11% on a comparable basis.
Robert J. Lawless, Chairman and CEO, commented, "Our sales and earnings for the second quarter exceeded our expectations. These results were driven in part by increased international sales, the incremental impact of Simply Asia Foods and favorable currency rates. With a strong first half, we expect to grow earnings per share 9-11% on a comparable basis, an increase from our original projection of 8-10%. Fiscal year 2007 is shaping up to be another record year for McCormick."
Sales in the second quarter rose 7%, which was an increase of 5% in local currency. The sales increases in Europe and the Asia/Pacific region were especially strong this quarter, driven by marketing support for branded consumer products as well as increased sales of industrial products to strategic customers. In the U.S., sales from the Simply Asia Foods business, which was acquired in June 2006, also added to the sales increase. During the second quarter, actions taken to eliminate low margin business decreased sales 1%.
Gross profit margin in the second quarter increased 0.4 percentage points, and the Company is on track to achieve a 0.5 percentage point increase for the fiscal year. Selling, general and administrative expense as a percent of net sales was down 0.4 percentage points. The Company's restructuring program is expected to generate $30 million in costs savings during 2007 and is reducing cost of goods sold as well as selling, general and administrative expense.
Earnings per share were $0.31 compared to $0.46 in the second quarter of 2006. Charges related to the Company's restructuring program reduced earnings per share $0.04 in the second quarter of 2007 compared to a favorable impact of credits that increased earnings per share $0.14 in the second quarter of 2006. Excluding these impacts in both periods, earnings per share rose $0.03, a 9% increase driven by higher sales and improved operating income margin.
On a comparable basis, which excludes the impact of restructuring charges, the Company expects to grow earnings per share 9-11% in 2007. This is an increase from an initial goal of 8-10%. Including estimated restructuring charges of $0.18, 2007 earnings per share are projected to be in the range of $1.69-$1.73. Financial performance ahead of the Company's goal will provide an opportunity to fund additional growth initiatives in the second half of the year.
Business Segment Results
Consumer Business
(in thousands) Three Months Ended Six Months Ended
------------------- -------------------
5/31/07 5/31/06 5/31/07 5/31/06
--------- --------- --------- ---------
Net sales $372,511 $350,054 $747,281 $694,818
Operating income 48,930 40,110 103,771 64,978
Operating income, excluding
restructuring charges 53,142 48,808 113,329 95,013
In the second quarter, sales for McCormick's consumer business rose 6%, which was an increase of 4% in local currency. Higher volume was due to incremental sales from the Simply Asia Foods business which was acquired in June 2006, and the positive impact of marketing support behind branded products, particularly in Europe. Favorable price and product mix also increased sales. Consumer sales in the Americas rose 5% with no impact from foreign exchange rates. The increase was driven primarily by incremental volume from Simply Asia Foods, and higher sales of the Club House brand in Canada, and of gourmet and Hispanic products in the U.S. Consumer sales in Europe increased 10%, which was an increase of 1% in local currency. Increases in the U.K. and France were achieved with marketing support behind branded products and pricing actions. However, consumer sales in Europe continue to be unfavorably affected by distribution lost to a competitor in The Netherlands and the Company's decision in 2006 to exit its business in Finland. These factors reduced sales by 3% in the second quarter. In the Asia/Pacific region, sales rose 8%, which was an increase of 1% in local currency. Double-digit sales growth in China was largely offset by the sales performance in Australia.
In the second quarter, consumer business operating income excluding restructuring charges rose to $53.1 million from $48.8 million in 2006. This was an increase of 9%, driven primarily by higher sales and the positive impact of the Company's cost savings program.
Industrial Business
(in thousands) Three Months Ended Six Months Ended
------------------- -------------------
5/31/07 5/31/06 5/31/07 5/31/06
--------- --------- --------- ---------
Net sales $314,703 $289,852 $592,573 $554,789
Operating income 17,978 14,588 29,487 14,013
Operating income, excluding
restructuring charges 20,978 18,897 34,981 30,363
In the second quarter, sales for McCormick's industrial business increased 9%, which was an increase of 6% in local currency. The impact of the Company's actions to eliminate lower margin customers and products reduced sales in the second quarter by 2%. Industrial sales in the Americas rose 2% with minimal impact from foreign currency. The elimination of lower margin customers and products in this part of the industrial business reduced sales 2%. Sales increases to strategic customers included snack seasonings, condiments and new products for large food manufacturers. In Europe, industrial sales rose 26%, which was an increase of 16% in local currency, with continued strength in sales of condiments and of seasonings for snack products. In addition, sales of food service products in the U.K. contributed to the increase. In this region, the elimination of lower margin customers reduced sales 2%. Sales in the Asia/Pacific region rose 34%, which was an increase of 27% in local currency, with significant gains in both China and Australia.
In the second quarter, industrial business operating income excluding restructuring charges rose to $21.0 million from $18.9 million in 2006, an increase of 11%. This increase was due to higher sales and the favorable impact of cost savings.
Non-GAAP Financial Measures
The pro forma information excluding restructuring charges in this press release are not measures that are defined in generally accepted accounting principles ("GAAP"). Management believes the pro forma information is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our on-going operations. Management analyzes the Company's business performance and trends excluding amounts related to the restructuring. These measures provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.
Pro forma Information
The Company has provided below certain pro forma financial results excluding amounts related to a restructuring program in 2007 and 2006.
(in thousands except per
share data) Three Months Ended Six Months Ended
------------------ ---------------------
5/31/07 5/31/06 5/31/07 5/31/06
-------- --------- ---------- ----------
Net income $41,425 $61,644 $85,653 $76,033
Impact of restructuring
charges (credits) 5,460* (18,743)* 11,081* 3,954*
-------- --------- ---------- ----------
Pro forma net income $46,885 $42,901 $96,734 $79,987
======== ========= ========== ==========
Earnings per share - diluted $0.31 $0.46 $0.64 $0.56
Impact of restructuring
charges (credits) 0.04 (.14) 0.08 0.03
-------- --------- ---------- ----------
Pro forma earnings per share
- diluted $0.35 $0.32 $0.72 $0.59
======== ========= ========== ==========
% increase versus prior
period 9.4% 22.0%
* The impact of restructuring activity on net income includes:
Restructuring charges
included in Cost of good
sold $(772) $(4,488) $(1,249) $(4,702)
Restructuring charges (6,440) (8,519) (13,803) (41,683)
Tax impact included in
income taxes 2,307 5,222 4,816 15,903
Gain/(Loss) on sale of
unconsolidated operations (555) 26,528 (845) 26,528
-------- --------- ---------- ----------
$(5,460) $18,743 $(11,081) $(3,954)
======== ========= ========== ==========
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. Go to ir.mccormick.com and follow directions to listen to the call and access the accompanying presentation materials. At this same location, a replay of the call will be available following the live call. Past press releases and additional information can be found at this address.
Forward-looking Information
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, ability to realize expected cost savings and margin improvements, 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 and global economic conditions, including interest and currency rate fluctuations, and inflation rates. Actual results could differ materially from those projected in the forward-looking statements. 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 manufacturers as well as to retail outlets.
Second Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Income Statement (Unaudited)
(In thousands except per-share data)
Three Months Ended Six Months Ended
----------------------- -----------------------
5/31/2007 5/31/2006 5/31/2007 5/31/2006
----------- ----------- ----------- -----------
Net sales $687,214 $639,906 $1,339,854 $1,249,607
Cost of goods sold 415,414 389,342 803,702 759,958
----------- ----------- ----------- -----------
Gross profit 271,800 250,564 536,152 489,649
Gross profit margin 39.6% 39.2% 40.0% 39.2%
Selling, general
and administrative
expense 198,452 187,347 389,091 368,975
Restructuring
charges 6,440 8,519 13,803 41,683
----------- ----------- ----------- -----------
Operating income 66,908 54,698 133,258 78,991
Interest expense 15,232 12,324 29,085 25,186
Other income, net (2,227) (1,775) (4,071) (2,923)
----------- ----------- ----------- -----------
Income from
consolidated
operations before
income taxes 53,903 44,149 108,244 56,728
Income taxes 16,755 13,068 32,744 17,093
----------- ----------- ----------- -----------
Net income from
consolidated
operations 37,148 31,081 75,500 39,635
Income from
unconsolidated
operations 5,023 4,765 11,596 12,044
Gain / (Loss) on
sale of
unconsolidated
operations (555) 26,528 (845) 26,528
Minority interest (191) (730) (598) (2,174)
----------- ----------- ----------- -----------
Net income $41,425 $61,644 $85,653 $76,033
=========== =========== =========== ===========
Earnings per common
share - basic $0.32 $0.47 $0.66 $0.57
=========== =========== =========== ===========
Earnings per common
share - diluted $0.31 $0.46 $0.64 $0.56
=========== =========== =========== ===========
Average shares
outstanding - basic 130,150 132,182 130,193 132,384
Average shares
outstanding - diluted 133,637 135,420 133,837 135,373
Second Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(In thousands)
5/31/2007 5/31/2006
----------- -----------
Assets
Current assets
Cash and cash equivalents $40,469 $74,068
Receivables, net 360,930 327,066
Inventories 427,512 381,863
Prepaid expenses and other current assets 59,470 49,967
----------- -----------
Total current assets 888,381 832,964
Property, plant and equipment, net 472,358 456,857
Goodwill and intangible assets, net 1,013,380 883,602
Prepaid allowances 47,007 48,480
Investments and other assets 162,969 141,512
----------- -----------
Total assets $2,584,095 $2,363,415
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current portion
of long-term debt $347,039 $151,256
Trade accounts payable 215,606 174,638
Other accrued liabilities 332,408 377,476
----------- -----------
Total current liabilities 895,053 703,370
Long-term debt 415,849 462,957
Other long-term liabilities 264,120 283,676
----------- -----------
Total liabilities 1,575,022 1,450,003
Minority interest 4,465 3,359
Shareholders' equity
Common stock 480,918 420,113
Retained earnings 355,392 384,095
Accumulated other comprehensive income 168,298 105,845
----------- -----------
Total shareholders' equity 1,004,608 910,053
----------- -----------
Total liabilities and shareholders'
equity $2,584,095 $2,363,415
=========== ===========
Second Quarter Report McCormick & Company, Incorporated
----------------------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
-----------------------
5/31/2007 5/31/2006
----------- -----------
Cash flows from operating activities
Net income $85,653 $76,033
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization 39,917 39,458
Stock based compensation 13,440 14,753
Loss / (Gain) on sale of unconsolidated
operation 845 (26,528)
Income from unconsolidated operations (11,596) (12,044)
Changes in operating assets and
liabilities (145,916) (22,119)
Dividends from unconsolidated affiliates 9,674 9,100
----------- -----------
Net cash flow from operating activities (7,983) 78,653
----------- -----------
Cash flows from investing activities
Capital expenditures (34,806) (31,335)
Acquisitions of businesses (3,127) -
Proceeds from redemption of unconsolidated
operation - 20,000
Proceeds from sale of property, plant and
equipment 100 298
----------- -----------
Net cash flow used in investing activities (37,833) (11,037)
----------- -----------
Cash flows from financing activities
Short-term borrowings, net 115,129 43,327
Long-term debt borrowings - 198,558
Long-term debt repayments (220) (195,432)
Proceeds from exercised stock options 27,886 25,235
Common stock acquired by purchase (57,536) (60,393)
Dividends paid (52,136) (47,710)
----------- -----------
Net cash flow provided by (used in) financing
activities 33,123 (36,415)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 4,119 12,604
----------- -----------
Increase/(decrease) in cash and cash
equivalents (8,574) 43,805
Cash and cash equivalents at beginning of
period 49,043 30,263
----------- -----------
Cash and cash equivalents at end of period $40,469 $74,068
=========== ===========
CONTACT:
McCormick & Company, Incorporated
Corporate Communications -
John McCormick
410-771-7110
john_mccormick@mccormick.com
Investor Relations -
Joyce Brooks
410-771-7244
joyce_brooks@mccormick.com
SOURCE:
McCormick & Company, Incorporated