McCormick Reports Third Quarter Financial Results
Sales in the third quarter were $545 million, an increase of 2% versus the third quarter of 2001. Sales were impacted by favorable foreign exchange and higher volume. These increases were offset in part by the timing of certain customer purchases as projected at the end of the second quarter.
Gross profit margin for the third quarter was 34.8% compared to a margin of 35.3% in the third quarter of 2001. The timing of customer purchases reduced sales in the U.S. to retail and food service customers, which resulted in a reduction to gross profit margin. Margins were also negatively impacted this quarter from poor performance in the U.K. brokerage business.
Earnings per share reported for the third quarter were 25 cents, an increase of 1 cent versus earnings per share of 24 cents reported for the third quarter of 2001. Excluding goodwill amortization for the third quarter of 2001, earnings per share were 27 cents, which compares to 25 cents for this year's third quarter. The drivers of the third quarter earnings decrease were 2 cents from operations and 1 cent from special charges, offset by a favorable 1 cent from interest. The 2 cents from operations includes several factors as previously communicated by the Company:
-- an unfavorable 2-3 cents from the timing of customer purchases in
advance of the Beyond 2000 program implementation in several U.S.
businesses
-- an unfavorable 2 cents from incremental costs associated with the
Beyond 2000 program implementation
-- an unfavorable 1 cent from poor performance in the U.K. brokerage
business
The 1 cent from special charges for the period were costs associated with
previously announced streamlining actions that could not be accrued last year.
These actions include the write-off of an investment, costs of the consolidation
of manufacturing in Canada and the closure of a U.S. distribution center.
Consumer Business
(in thousands) Three Months Ended Nine Months Ended
8/31/02 8/31/01 8/31/02 8/31/01
Net sales $233,442 $228,303 $716,069 $689,478
Operating income 28,770 27,385 94,823 80,345
Operating income,
excluding special
charges and goodwill
amortization 28,960 30,134 96,353 88,848
In the third quarter, sales for McCormick's consumer business rose 2% above
2001. Excluding a favorable impact from foreign exchange, sales declined 1%. In
local currency, consumer sales declined 4% in the Americas, increased 3% in
Europe and were even with the prior year in the Asia/Pacific region. Sales in
the Americas were reduced by customer purchases in advance of the Company's U.S.
implementation of its Beyond 2000 program, which occurred at the end of the
second quarter. Through the first nine months, consumer sales in the Americas
were up 4%, driven by higher volume. Operating income for the consumer business
was $28.8 million in the third quarter. Excluding special charges and goodwill
amortization for both years, operating income for 2002 was $29.0 million,
compared to operating income of $30.1 million in 2001. Operating income was
impacted by lower sales in the U.S. related to the timing of customer purchases,
costs associated with the implementation of Beyond 2000 and poor performance in
the U.K. brokerage business. Through the first nine months of 2002, operating
income for the consumer business, excluding special charges and goodwill
amortization, rose 8%.
Industrial Business
(in thousands) Three Months Ended Nine Months Ended
8/31/02 8/31/01 8/31/02 8/31/01
Net sales $267,515 $261,769 $773,434 $736,865
Operating income 30,435 30,858 80,813 74,548
Operating income,
excluding special
charges and goodwill
amortization 31,031 31,160 81,975 75,466
For the third quarter, industrial sales increased 2% versus last year. Excluding
a favorable impact from foreign exchange, sales increased 1%. In local currency,
industrial sales were unchanged from last year in the Americas, 1% higher in
Europe and 12% higher in the Asia/Pacific region. Sales in the Americas were
reduced by food service customer purchases in advance of the Company's U.S.
implementation of its Beyond 2000 program, which occurred at the end of the
second quarter. Through the first nine months of 2002, industrial sales in the
Americas rose 5%. Operating income was impacted this quarter by lower margins in
our European operations due in part to additional product development costs
related to potential new business. Investment in product development also
increased in other parts of the business this quarter. Costs associated with the
Beyond 2000 implementation also lowered operating income for the industrial
business in the third quarter. Through the first nine months of 2002, operating
income for the industrial business, excluding special charges and goodwill
amortization, rose 9%.
Packaging Business
(in thousands) Three Months Ended Nine Months Ended
8/31/02 8/31/01 8/31/02 8/31/01
Net sales $44,054 $45,829 $127,034 $140,173
Operating income 5,613 5,053 14,035 16,500
Operating income,
excluding special
charges and goodwill
amortization 5,745 5,098 14,287 16,635
Packaging business sales remained weak this quarter with the lower demand for
tube products supplied to the health and personal care industry. Operating
income (including intersegment business) for the third quarter of 2002 was $5.6
million. When special charges and goodwill amortization are excluded, operating
income was $5.7 million versus $5.1 million in 2001, an increase of 13%. Actions
taken to adjust production activities, including a reduction in workforce, drove
a better margin when compared to year ago results.
Chairman's Comments
Commented Robert J. Lawless, Chairman, President & CEO, "McCormick has achieved good sales growth and margin improvement through the first nine months of our fiscal year. While the timing of pricing actions and Beyond 2000 implementation have caused our financial results by quarter to fluctuate when compared to last year, we are on track to meet our full year financial objectives for 2002.
"At the end of the second quarter, we indicated that third quarter sales and earnings would be reduced by customer purchases occurring at the end of the second quarter in anticipation of our Beyond 2000 implementation. We also indicated that costs associated with this implementation, as well as continued weakness in our U.K. brokerage business, would reduce third quarter earnings. As projected, these factors lowered our earnings for the quarter. While the impact of Beyond 2000 was considered when we set our objectives for the year, the situation in the U.K. brokerage business was not. Excluding the impact of the U.K. brokerage business, our core consumer and industrial food businesses have had excellent performance. Year-to-date we increased sales 5%, achieved 1.0 percentage points of gross profit margin improvement and grew operating income 13% (on a comparable basis, excluding goodwill amortization and special charges).
"For the full year we expect our base business performance to offset the financial challenges we encountered and to attain our financial goals set forth early in 2002: 4-6% sales increase, .50 to .75 percentage points of gross margin improvement, and 9-11% earnings per share growth (on a comparable basis, excluding goodwill amortization and special charges). Given our results through the first three quarters and our outlook for the fourth quarter, we have more confidence at the lower end of our 9-11% earnings per share growth rate.
"On June 5th we completed 18 months of planning and development of our Beyond 2000 program. Our first business units in the U.S. began operating with the new processes and systems on that date. Through these first critical months, our employees across many parts of our organization have worked with perseverance and persistence to master new skills, refine workflow and minimize customer service issues. As we look forward, we can begin to move from implementation and stabilization to optimization of these businesses and to prepare for the conversion of our U.S. industrial businesses in 2003. Our ability to share knowledge, standardize processes, enhance customer relationships and improve operations will expand as we move each business to the Beyond 2000 platform.
"As a further commitment to improving operations, we recently announced an organizational change which brings together the key components of our supply chain under Fran Contino who has been promoted to Executive Vice President, CFO & Supply Chain. The new organization will more closely align our strategic functions of finance, global business systems, operations, strategic sourcing and logistics. With the new capabilities from Beyond 2000 and this organizational focus, we are on our way to achieving the highest level of customer satisfaction and cost optimization.
"We are beginning our significant fourth quarter, with a number of key marketing activities planned for the holiday season and in support of new products. Recent new products are designed to provide convenience and superior flavor to consumers, including our line of McCormick 'One-Step' seasoning blends in the U.S. and new Schwartz brand 'Shotz' in the U.K. In our industrial business, we are working with restaurants and other food processors to develop consumer-preferred flavors - flavors that are winners for our customers.
"In the first nine months of 2002 our business has performed well. The Company generates strong cash flow, and we have aggressively paid off the debt used to finance our Ducros acquisition. With this rapid pay down of debt, we have returned to our targeted, 45-55% debt-to-total capital range ahead of schedule.
"We are positioned for an excellent fourth quarter. Beyond 2000 has been implemented in our first operating units, new products have been launched, strong support for our branded products is underway and we have a renewed focus on our supply chain. These initiatives will drive sales in our core businesses and continue our success in margin improvement. I am confident that 2002 will be another record year of sales and profits for McCormick."
Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 11:00 a.m. EDT. The conference call will be webcast 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 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 and 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: competitive conditions, customer relationships and financial condition, availability and cost of raw and packaging materials, governmental actions and political events, and general economic conditions, including interest rate and 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.
Third Quarter Report McCormick & Company, Incorporated
Consolidated Income Statement (Unaudited)
(In thousands except per-share data)
Three Months Ended Nine Months Ended
8/31/02 8/31/01 8/31/02 8/31/01
Net sales $545,011 $535,901 $1,616,537 $1,566,516
Cost of goods sold 355,124 346,829 1,048,704 1,027,131
Gross profit 189,887 189,072 567,833 539,385
Gross profit margin 34.8% 35.3% 35.1% 34.4%
Selling, general &
administrative expense 129,765 132,633 398,085 388,437
Special charges 2,918 0 4,944 0
Operating income 57,204 56,439 164,804 150,948
Interest expense 10,613 12,541 32,794 40,286
Other (income)/expense (384) (1,212) (1,034) (1,786)
Income before income taxes 46,975 45,110 133,044 112,448
Income taxes 15,387 14,931 42,427 37,220
Net income from consolidated
operations 31,588 30,179 90,617 75,228
Income from unconsolidated
operations 4,376 4,639 14,195 13,899
Minority interest (787) (506) (2,181) (1,593)
Net income $35,177 $34,312 $102,631 $87,534
Basic earnings-per-share:
Net income $0.25 $0.25 $0.74 $0.64
Net income excluding
goodwill $0.25 $0.27 $0.74 $0.70
Diluted earnings-per-share:
Net income $0.25 $0.24 $0.72 $0.63
Net income excluding
goodwill $0.25 $0.27 $0.72 $0.69
Average shares outstanding -
basic 139,906 138,170 139,388 137,618
Average shares outstanding -
assuming dilution 142,762 140,254 142,288 139,958
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)
8/31/02 8/31/01
Assets
Cash $23,329 $32,134
Receivables 293,349 271,405
Inventories 316,492 295,088
Prepaid allowances 116,153 103,697
Property, plant and equipment, net 472,525 408,686
Other assets 683,344 619,108
Total assets $1,905,192 $1,730,118
Liabilities and shareholders' equity
Short-term borrowings $260,477 $328,878
Other current liabilities 461,806 409,118
Long-term debt 453,961 454,212
Other liabilities 144,065 112,611
Shareholders' equity 584,883 425,299
Total liabilities and
shareholders' equity $1,905,192 $1,730,118
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SOURCE McCormick & Company, Incorporated
CONTACT: McCormick & Company Corporate Communications, +1-410-771-7310 URL: http://www.mccormick.com http://www.prnewswire.com
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