McCormick Reports Second Quarter Results and Projects Strong Second Half for Fiscal Year
SPARKS, Md., June 30, 2005 /PRNewswire-FirstCall via COMTEX/ -- McCormick & Company, Incorporated (NYSE: MKC), today reported record sales and earnings per share for the second quarter ended May 31, 2005 and projected strong profit growth in the second half of the fiscal year. Earnings per share for the year are projected to be $1.66-$1.70. Since the prior guidance of $1.70-$1.74, foreign exchange rates have become less favorable and the Company has moderated its outlook for industrial business growth.
- Second quarter sales increased 5% to $629 million, and earnings per share were $0.31.
- Earnings per share in the second half are projected to grow 16%-20%.
- The Board of Directors approved a new program to repurchase $400 million of outstanding shares.
Sales for the quarter rose 5% to $629 million compared to the second quarter of 2004. New products, effective marketing programs and incremental sales from the Silvo business acquired in 2004 drove an increase of 3%. Favorable foreign exchange rates added 2%.
Earnings per share for the second quarter were $0.31 compared to earnings per share of $0.30 reported in the second quarter of 2004. Higher operating income added $0.01 to earnings per share and was the net result of an increase in sales, lower gross profit margin, and the effect of income related to the settlement of a class action lawsuit that was recorded in the second quarter of 2004. Higher cost vanilla beans continued to have an impact on gross profit margin in the second quarter. Gross profit margin was also affected by additional operational accounting adjustments related to the condiment operation in the U.K. Earnings per share this period were impacted by higher income from the Company's joint venture in Mexico and lower shares outstanding. These positive factors were offset by higher interest rates and a higher tax rate.
During the quarter, the Company funded $75 million of share repurchases and $22 million of dividends with net cash from operations and increased borrowings. Dividend payments increased 12% compared to the second quarter of 2004, and share repurchases rose 11%.
Chairman's Comments
Robert J. Lawless, Chairman, President & CEO, commented, "In the second quarter, we achieved higher sales, a positive product mix and cost reductions that more than offset the adverse effect of high cost vanilla beans and operational accounting adjustments. As we look to the second half of our fiscal year, we expect strong sales growth, robust margin improvement and a 16%-20% increase in earnings per share. Based on a less favorable foreign exchange outlook and a moderation in projected growth for our industrial business, however, we have lowered our earnings per share guidance for the full year to $1.66-$1.70. For the third quarter, we are projecting earnings per share of $0.36-$0.37, an increase of 9%-12% compared to a $0.33 result in 2004.
"Second quarter sales were positively impacted by successful new products, effective marketing programs, favorable foreign exchange rates and the acquisition of Silvo. Earnings were further increased as we reduced costs across our organization. Our consumer business results in the Americas were particularly strong, and we were pleased to achieve higher sales in our European consumer business despite difficult market conditions. Sales and profits in our industrial business were affected by lower vanilla prices, some delay in the launch of new products by our customers and the additional operational accounting adjustments in our U.K. condiment operation. These challenges offset strong sales and underlying margin improvement for the first six months of 2005 and led to a $0.01 decline in earnings per share when compared to 2004.
"For the second half, we are projecting significantly improved financial performance. We expect to grow sales about 4% based on our new product activity, marketing programs and the addition of Silvo. Consumer business sales are projected to grow at a faster pace than industrial business sales during this period. While the industrial business will continue to have strong sales in products such as snack seasonings, other new products in our pipeline have not yet been launched by our customers. During the second half, we will reduce costs and benefit from a positive product mix, increasing gross profit margin an estimated 0.5 percentage points for the full fiscal year. With a focused effort by employees throughout McCormick, we are on track to achieve our cost savings goal of $25 million. Together, the benefits of higher sales and margin improvement are projected to increase earnings per share 16%- 20% in the second half.
"With the cash generated during the first half of 2005, we repurchased shares and are nearing completion of the $300 million authorization approved in September 2003. Earlier this week, McCormick's Board of Directors approved a new repurchase program to buy back up to $400 million of outstanding stock. This program is expected to be completed by the end of 2007 in the absence of significant acquisition activity.
"In the first half of this fiscal year we faced a number of challenges. As we begin the second half, many of these challenges are behind us. We are confident that higher sales, improved margins and the benefit of our strong cash flow will deliver strong financial results and increased value for McCormick shareholders."
Business Segment Results
Consumer Business
(in thousands) Three Months Ended Six Months Ended
5/31/05 5/31/04 5/31/05 5/31/04
Net sales $323,796 $297,338 $645,851 $596,392
Operating income 54,124 45,616 108,315 94,614
For the second quarter, sales for McCormick's consumer business rose 9% when compared to 2004. Higher volume added 5% to sales, including an increase from the acquisition of Silvo. Favorable price and product mix added 2%, and favorable foreign exchange rates also added 2%. In the Americas, sales increased 5% with higher pricing, new product sales and effective marketing programs. Consumer sales in Europe increased 18% for the quarter, with 12% due to the acquisition of Silvo in November 2004 and 5% due to favorable foreign exchange. Sales from new products and marketing programs overcame difficult market conditions, primarily in France. In the Asia/Pacific region, sales declined 1%, despite favorable foreign exchange rates that added 3%.
Higher sales and a favorable product mix drove a 19% increase in operating income, more than offsetting impacts from lower vanilla margins and the operational accounting adjustments. This follows an increase in operating income of 25% during the second quarter of 2004.
Industrial Business
(in thousands) Three Months Ended Six Months Ended
5/31/05 5/31/04 5/31/05 5/31/04
Net sales $304,775 $298,826 $586,344 $572,134
Operating income 27,698 28,913 43,863 54,271
For the second quarter of 2005, sales for McCormick's industrial business increased 2% when compared to 2004, due primarily to favorable foreign exchange rates. In the Americas, industrial sales rose 2%, with 1% added by favorable foreign exchange rates. The Company continued to gain new snack seasoning sales as well as increased sales to food service distributors. As in the first quarter, these increases were partially offset by lower vanilla prices. Industrial sales in Europe increased 1% for the quarter, with foreign exchange contributing 4%. Steps to eliminate certain lower margin products began in 2004 and continue to have an impact on sales in 2005. In the Asia/Pacific region, industrial sales rose 4% led by higher sales to quick service restaurants, other food processors and food service distributors. In this region, 2% was added by favorable foreign exchange during the quarter.
Industrial business operating income was $28 million, a 4% decrease compared to the prior year. The impact of lower vanilla prices and the operational accounting adjustments were offset in part by cost reductions and a positive product mix.
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. Go to ir.mccormick.com and follow directions to listen to the call. 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, 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.
Second Quarter Report McCormick & Company, Incorporated
Consolidated Income Statement
(In thousands except per-share data)
Three Months Ended Six Months Ended
5/31/2005 5/31/2004 5/31/2005 5/31/2004
Net sales $628,571 $596,164 $1,232,195 $1,168,526
Cost of goods sold 387,225 364,238 762,680 714,913
Gross profit 241,346 231,926 469,515 453,613
Gross profit margin 38.4% 38.9% 38.1% 38.8%
Selling, general &
administrative expense 170,864 168,652 339,775 328,885
Special charges /
(credits) (670) (6,448) 630 (6,379)
Operating income 71,152 69,722 129,110 131,107
Interest expense 11,942 9,695 23,026 19,267
Other (income) / expense,
net 97 (536) 43 (684)
Income from consolidated
operations before income
taxes 59,113 60,563 106,041 112,524
Income taxes 18,916 18,713 33,933 34,769
Net income from consolidated
operations 40,197 41,850 72,108 77,755
Income from
unconsolidated
operations 3,802 1,825 9,258 5,085
Minority interest (1,205) (822) (2,537) (1,881)
Net income $42,794 $42,853 $78,829 $80,959
Earnings per share - basic $0.32 $0.31 $0.58 $0.59
Earnings per share - diluted $0.31 $0.30 $0.56 $0.57
Average shares outstanding -
basic 134,742 137,679 135,193 137,519
Average shares outstanding -
diluted 138,739 142,494 139,586 142,133
Second Quarter Report McCormick & Company, Incorporated
Consolidated Balance Sheet
(In thousands)
5/31/2005 5/31/2004
Assets
Current assets
Cash and cash equivalents $20,096 $16,125
Receivables, net 328,117 309,700
Inventories 345,281 373,974
Prepaid expenses and other current assets 45,560 37,416
Total current assets 739,054 737,215
Property, plant and equipment, net 471,495 456,556
Goodwill and intangible assets, net 789,719 727,505
Prepaid allowances 50,078 79,711
Investments and other assets 136,317 129,287
Total assets $2,186,663 $2,130,274
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $421,455 $142,810
Trade accounts payable 167,816 166,188
Other accrued liabilities 293,329 295,475
Total current liabilities 882,600 604,473
Long-term debt 271,202 495,884
Other long-term liabilities 197,745 204,900
Total liabilities 1,351,547 1,305,257
Minority interest 29,128 23,780
Shareholders' equity
Common stock 372,127 312,192
Retained earnings 375,721 448,463
Accumulated other comprehensive income 58,140 40,582
Total shareholders' equity 805,988 801,237
Total liabilities and
shareholders' equity $2,186,663 $2,130,274
Second Quarter Report McCormick & Company, Incorporated
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
5/31/2005 5/31/2004
Cash flows from operating activities
Net income $78,829 $80,959
Adjustments to reconcile net
income to net cash flow from operating
activities:
Depreciation and amortization 35,493 34,702
Income from unconsolidated operations (9,258) (5,085)
Changes in operating assets and
liabilities (47,504) (31,943)
Dividends from unconsolidated affiliates 9,020 900
Net cash flow from operating activities 66,580 79,533
Cash flows from investing activities
Capital expenditures (30,316) (27,654)
Proceeds from sale of property,
plant and equipment 488 1,271
Net cash flow from investing activities (29,828) (26,383)
Cash flows from financing activities
Short-term borrowings, net 54,686 (28,686)
Long-term debt borrowings 5 49,788
Long-term debt repayments (352) (260)
Proceeds from exercised stock options 28,983 31,273
Common stock acquired by purchase (120,732) (80,740)
Dividends paid (43,337) (38,561)
Net cash flow from financing activities (80,747) (67,186)
Effect of exchange rate changes on
cash and cash equivalents (6,244) 5,020
Decrease in cash and cash equivalents (50,239) (9,016)
Cash and cash equivalents at
beginning of period 70,335 25,141
Cash and cash equivalents at end of period $20,096 $16,125
SOURCE McCormick & Company, Incorporated
Corporate Communications:
Mac Barrett
410-771-7310
mac_barrett@mccormick.com
Investor Relations:
Joyce Brooks
410-771-7244
joyce_brooks@mccormick.com
both
of McCormick & Company, Incorporated