SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 25, 2008
McCormick & Company, Incorporated
(Exact name of registrant as specified in its charter)
| Maryland | 0-748 | 52-0408290 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 18 Loveton Circle Sparks, Maryland |
21152 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (410) 771-7301
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b). |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c). |
| Item 2.02 | Results of Operations and Financial Condition. |
On September 25, 2008, the Registrant issued a press release and held a conference call with analysts to report on the results of operations for the third quarter of fiscal year 2008, which ended on August 31, 2008.
Furnished with this Form 8-K as Exhibit 99.1 is a copy of the press release labeled “McCormick Reports Third Quarter Results,” which includes an unaudited Consolidated Income Statement for the three months ended August 31, 2008, an unaudited Consolidated Balance Sheet of the Registrant as of August 31, 2008, and an unaudited Consolidated Cash Flow Statement for the three months ended August 31, 2008.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
The exhibit to this report is listed in Item 2.02 above and in the Exhibit Index that follows the signature line.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| McCORMICK & COMPANY, INCORPORATED | ||||
| Date: September 25, 2008 | By: | /s/ Robert W. Skelton | ||
| Robert W. Skelton | ||||
| Senior Vice President, General Counsel & Secretary | ||||
Exhibit Index
| Exhibit |
Exhibit Description | |
| 99.1 |
Copy of the press release labeled “McCormick Reports Third Quarter Results.” |
Exhibit 99.1
FOR IMMEDIATE RELEASE
McCORMICK REPORTS THIRD QUARTER RESULTS
| • | Net sales rose 9% to $782 million. |
| • | Company increased marketing support 30% to drive growth. |
| • | Earnings per share increased 21% with strong business results and a gain on the sale of Season-All. |
SPARKS, MD, SEPTEMBER 25 — McCormick & Company, Incorporated (NYSE:MKC), today reported results for the third quarter ended August 31, 2008.
Alan D. Wilson, President and CEO, stated, “Despite a tough economy and volatile material costs, we continue to grow sales and achieve higher profit as reflected in our latest financial results. A double-digit increase in sales of our consumer products was driven by higher volume and product mix, which included results from our 2008 acquisitions of the Lawry’s® business and Billy Bee® honey, and by pricing actions. Pricing led to an increase in industrial business sales for the third quarter, which was offset in part by reduced volume and product mix to restaurant customers in the U.S. and Europe. Our Asia/Pacific region reported another excellent quarter with a double-digit sales increase for both the consumer and industrial businesses.
“We are committed to investing in the growth of our business and during the third quarter we completed the acquisition of Lawry’s and also increased the marketing support behind our leading brands. The integration of Lawry’s is well underway and we are making progress with the transition of production, as well as product innovation and marketing plans. In the third quarter we stepped up marketing support behind this year’s new products, as well as Grill Mates®, grinders and seafood items. Acquisitions, marketing support and other investments in our business have us well-positioned for the upcoming holiday season and on-track for strong results in 2008.”
For the third quarter, the Company’s net sales rose 9% over the third quarter of 2007 with 4% from pricing actions taken to offset higher costs, 3% from favorable foreign exchange rates and 2% from higher volume and product mix. Acquisitions, new distribution and increased marketing support led to a 7% increase in volume and product mix in the consumer business, while volume and product mix in the industrial business declined 5% with lower sales to restaurant customers.
Earnings per share rose 21%, or $0.09, to $0.52, compared to the third quarter of 2007. Higher operating income, which included $6.8 million of increased marketing support, added $0.02 to earnings per share. Another $0.03 per share was added from a
combination of reduced interest expense, a lower tax rate and higher income from unconsolidated operations. In connection with the acquisition of Lawry’s during the third quarter, the Company sold its Season-All® business and recorded a $12.9 million pre-tax gain which added $0.07 to earnings per share. Also, in conjunction with the Lawry’s acquisition, the Company recorded a $5.0 million pre-tax cost to rebalance its debt structure which reduced earnings per share by $0.03. Earnings per share in both the third quarter of 2008 and 2007 included $0.02 of restructuring charges.
For the first three quarters, cash flow from operations was $115 million in 2008 compared to $23 million in 2007. This improved result during 2008 was largely due to a decrease in payments related to the restructuring plan, higher collection of receivables, effective inventory management and lower retirement plan contributions. The Company continues to project at least $300 million in cash from operations in fiscal year 2008.
The Company’s 2008 guidance for sales growth and earnings per share was increased in August to account for the Lawry’s acquisition. Based on the third quarter results and the current outlook for the fourth quarter, the Company reaffirmed that it expects to grow fiscal year 2008 sales 9 to 10%. The guidance for 2008 earnings per share has been increased by $0.01 to a range of $2.04 to $2.08 because the actual gain on the sale of Season-All exceeded the Company’s initial projection. In addition to the gain on the sale of Season-All, this guidance includes an estimated $0.10 per share of restructuring charges and $0.03 per share for costs to rebalance debt.
Business Segment Results
Consumer Business
| (in millions) | Three Months Ended | Nine Months Ended | ||||||||||
| 8/31/08 | 8/31/07 | 8/31/08 | 8/31/07 | |||||||||
| Net sales |
$ | 443.0 | $ | 387.4 | $ | 1,270.9 | $ | 1,134.7 | ||||
| Operating income |
72.7 | 66.3 | 197.6 | 170.0 | ||||||||
| Operating income, excluding restructuring charges |
75.1 | 70.5 | 197.8 | 183.8 | ||||||||
For the third quarter, sales for McCormick’s consumer business rose 14% and 10% in local currency over the third quarter of 2007. Higher volume and product mix added 7% to sales, including the impact of recent acquisitions that accounted for 4% of the increase. Pricing actions taken to offset higher costs added another 3% to sales. Consumer sales in the Americas rose 15% and 14% in local currency. In this region, higher volume and product mix added 10% to sales including a 6% impact from the acquisitions of Lawry’s and Billy Bee honey, as well as the benefit of new distribution and increased marketing support. Higher pricing added 4% to consumer sales in the Americas. Consumer sales in Europe increased 11%, with 11% from favorable foreign exchange rates and 1% from pricing actions. Unfavorable volume and product mix reduced sales by 1% as a tough economy began to impact this region. Performance remained strong in the Asia/Pacific region, with consumer sales up 25% and 12% in local currency, led by favorable volume and product mix.
For the third quarter, consumer business operating income excluding restructuring charges rose to $75.1 million from $70.5 million in 2007 due in large part to
the 14% increase in sales. Operating income in the third quarter of 2008 included a significant increase in promotion and advertising to support the long-term growth of the Company’s consumer brands.
Industrial Business
| (in millions) | Three Months Ended | Nine Months Ended | ||||||||||
| 8/31/08 | 8/31/07 | 8/31/08 | 8/31/07 | |||||||||
| Net sales |
$ | 338.6 | $ | 328.8 | $ | 998.8 | $ | 921.4 | ||||
| Operating income |
20.2 | 22.6 | 53.2 | 52.1 | ||||||||
| Operating income, excluding restructuring charges |
21.3 | 22.6 | 57.2 | 57.6 | ||||||||
For the third quarter, sales for McCormick’s industrial business increased 3% over the third quarter of 2007, with a 2% increase from foreign exchange rates and 6% from higher prices taken in response to increased costs of certain commodities. While the Company successfully introduced new products during this period, volume and product mix declined 5% with lower sales to restaurant customers in the Americas and Europe. In addition, efforts to discontinue the sale of certain low margin items impacted third quarter sales. Industrial sales in the Americas rose 1% with 1% added from favorable foreign exchange rates and 5% from pricing actions, offset in part by a 5% decline in volume and product mix. In Europe, a 1% increase in industrial sales was the result of higher pricing which added 9%, offset in part by an 8% reduction in volume and product mix. Currency exchange rates had no significant impact to the industrial business in Europe where the primary exposure is to the British pound. Strong demand by restaurant customers in the Asia/Pacific region, along with higher pricing, led to a 26% increase in industrial sales in the third quarter. In local currency, the increase was 14%.
Following year on year increases in industrial operating income in the first two quarters, lower volume in the third quarter led to a $1.3 million decline in operating income excluding restructuring charges. The Company is pursuing additional new product opportunities to drive sales growth, improve manufacturing efficiency and increase profit for the industrial business.
Non-GAAP Financial Measures
The non-GAAP information in this press release (which excludes restructuring charges, the gain on the sale of Season-All and the cost related to a rebalancing of the debt structure for the Lawry’s acquisition) is not a measure that is defined in generally accepted accounting principles (“GAAP”). Management believes the non-GAAP 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, the gain on the sale of Season-All and the cost related to a rebalancing of the debt structure for the Lawry’s acquisition. Management believes 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.
Reconciliation of GAAP to non-GAAP Financial Measures
The Company has provided below certain non-GAAP financial results excluding amounts related to a restructuring program in 2008 and 2007 and, related to the acquisition of Lawry’s in the third quarter of 2008, the gain on the sale of Season-All and cost to rebalance debt.
| (in millions except per share data) | Three Months Ended | Nine Months Ended | ||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/08 | 8/31/07 | |||||||||||||
| Operating income |
$ | 92.9 | $ | 88.9 | $ | 250.8 | $ | 222.1 | ||||||||
| Impact of restructuring charges |
3.5 | 4.2 | 4.2 | 19.3 | ||||||||||||
| Adjusted operating income |
$ | 96.4 | $ | 93.1 | $ | 255.0 | $ | 241.4 | ||||||||
| % increase versus prior period |
3.5 | % | 5.6 | % | ||||||||||||
| Net income |
$ | 68.6 | $ | 56.8 | $ | 173.4 | $ | 142.5 | ||||||||
| Impact of restructuring charges |
2.4 | * | 3.0 | * | 2.9 | * | 14.1 | * | ||||||||
| Gain on sale of Season-All ($12.9 pre-tax) |
(8.9 | ) | — | (8.9 | ) | — | ||||||||||
| Cost to rebalance debt ($5.0 pre-tax) |
3.4 | — | 3.4 | — | ||||||||||||
| Adjusted net income |
$ | 65.5 | $ | 59.8 | $ | 170.8 | $ | 156.6 | ||||||||
| Earnings per share – diluted |
$ | 0.52 | $ | 0.43 | $ | 1.32 | $ | 1.07 | ||||||||
| Impact of restructuring charges |
0.02 | 0.02 | 0.02 | 0.10 | ||||||||||||
| Gain on sale of Season-All |
(0.07 | ) | — | (0.07 | ) | — | ||||||||||
| Cost to rebalance debt |
0.03 | — | 0.03 | — | ||||||||||||
| Adjusted earnings per share – diluted |
$ | 0.50 | $ | 0.45 | $ | 1.30 | $ | 1.17 | ||||||||
| % increase versus prior period |
11.1 | % | 11.1 | % | ||||||||||||
| * The impact of restructuring activity on net income includes: |
||||||||||||||||
| Restructuring charges included in cost of good sold |
$ | (0.9 | ) | $ | (1.4 | ) | $ | (2.5 | ) | $ | (2.7 | ) | ||||
| Restructuring charges |
(2.6 | ) | (2.8 | ) | (1.7 | ) | (16.6 | ) | ||||||||
| Tax impact included in income taxes |
1.1 | 1.2 | 1.3 | 6.0 | ||||||||||||
| Loss on sale of unconsolidated operations |
— | — | — | (0.8 | ) | |||||||||||
| $ | (2.4 | ) | $ | (3.0 | ) | $ | (2.9 | ) | $ | (14.1 | ) | |||||
Live Webcast
As previously announced, McCormick will hold a conference call with analysts today at 8:00 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 damage to our reputation or brand name, business interruptions due to natural disasters or similar unexpected events, actions of competitors, customer relationships and financial condition, the ability to achieve expected cost savings and margin improvements, the successful acquisition and integration of new businesses, fluctuations in the cost and availability of raw and packaging materials, and global economic conditions generally which would include interest and inflation rates as well as foreign currency fluctuations, and other risks described in the Company’s Form 10-K for the fiscal year ended November 30, 2007. 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 a global leader in the manufacture, marketing and distribution of spices, seasonings and flavors to the entire food industry – retail outlets, food manufacturers and food service businesses.
# # #
For information contact:
Corporate Communications: John McCormick (410-771-7110 or
john_mccormick@mccormick.com)
Investor Relations: Joyce Brooks (410-771-7244 or joyce_brooks@mccormick.com)
9/2008
| Third Quarter Report |
McCormick & Company, Incorporated |
Consolidated Income Statement (Unaudited)
(In millions except per-share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| August 31, 2008 | August 31, 2007 | August 31, 2008 | August 31, 2007 | |||||||||||||
| Net sales |
$ | 781.6 | $ | 716.2 | $ | 2,269.7 | $ | 2,056.1 | ||||||||
| Cost of goods sold |
473.2 | 431.9 | 1,377.6 | 1,235.6 | ||||||||||||
| Gross profit |
308.4 | 284.3 | 892.1 | 820.5 | ||||||||||||
| Gross profit margin |
39.5 | % | 39.7 | % | 39.3 | % | 39.9 | % | ||||||||
| Selling, general and administrative expense |
212.9 | 192.6 | 639.6 | 581.8 | ||||||||||||
| Restructuring charges |
2.6 | 2.8 | 1.7 | 16.6 | ||||||||||||
| Operating income |
92.9 | 88.9 | 250.8 | 222.1 | ||||||||||||
| Interest expense |
12.8 | 15.8 | 40.3 | 44.9 | ||||||||||||
| Other income, net |
(10.0 | ) | (2.4 | ) | (16.4 | ) | (6.5 | ) | ||||||||
| Income from consolidated operations before income taxes |
90.1 | 75.5 | 226.9 | 183.7 | ||||||||||||
| Income taxes |
26.8 | 23.2 | 68.5 | 55.9 | ||||||||||||
| Net income from consolidated operations |
63.3 | 52.3 | 158.4 | 127.8 | ||||||||||||
| Income from unconsolidated operations |
5.3 | 4.5 | 15.0 | 15.5 | ||||||||||||
| Loss on sale of unconsolidated operation |
— | — | — | (0.8 | ) | |||||||||||
| Net income |
$ | 68.6 | $ | 56.8 | $ | 173.4 | $ | 142.5 | ||||||||
| Earnings per common share - basic |
$ | 0.53 | $ | 0.44 | $ | 1.35 | $ | 1.10 | ||||||||
| Earnings per common share - diluted |
$ | 0.52 | $ | 0.43 | $ | 1.32 | $ | 1.07 | ||||||||
| Average shares outstanding - basic |
129.3 | 129.1 | 128.7 | 129.8 | ||||||||||||
| Average shares outstanding - diluted |
132.3 | 132.4 | 131.6 | 133.3 | ||||||||||||
| Third Quarter Report |
McCormick & Company, Incorporated |
Consolidated Balance Sheet (Unaudited)
(In millions)
| August 31, 2008 | August 31, 2007 | |||||
| Assets |
||||||
| Current assets |
||||||
| Cash and cash equivalents |
$ | 30.3 | $ | 45.7 | ||
| Receivables, net |
429.8 | 399.9 | ||||
| Inventories |
462.3 | 439.9 | ||||
| Prepaid expenses and other current assets |
57.6 | 58.1 | ||||
| Total current assets |
980.0 | 943.6 | ||||
| Property, plant and equipment, net |
476.6 | 469.5 | ||||
| Goodwill, net |
1,328.3 | 835.7 | ||||
| Intangible assets, net |
419.7 | 204.4 | ||||
| Prepaid allowances |
42.0 | 46.7 | ||||
| Investments and other assets |
183.7 | 173.4 | ||||
| Total assets |
$ | 3,430.3 | $ | 2,673.3 | ||
| Liabilities and shareholders' equity |
||||||
| Current liabilities |
||||||
| Short-term borrowings and current portion of long-term debt |
$ | 473.5 | $ | 455.7 | ||
| Trade accounts payable |
249.2 | 209.3 | ||||
| Other accrued liabilities |
334.4 | 339.0 | ||||
| Total current liabilities |
1,057.1 | 1,004.0 | ||||
| Long-term debt |
878.2 | 418.0 | ||||
| Other long-term liabilities |
279.8 | 282.0 | ||||
| Total liabilities |
2,215.1 | 1,704.0 | ||||
| Shareholders’ equity |
||||||
| Common stock |
578.1 | 489.4 | ||||
| Retained earnings |
403.3 | 298.8 | ||||
| Accumulated other comprehensive income |
233.8 | 181.1 | ||||
| Total shareholders’ equity |
1,215.2 | 969.3 | ||||
| Total liabilities and shareholders' equity |
$ | 3,430.3 | $ | 2,673.3 | ||
| Third Quarter Report |
McCormick & Company, Incorporated |
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
| Nine Months Ended | ||||||||
| August 31, 2008 | August 31, 2007 | |||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 173.4 | $ | 142.5 | ||||
| Adjustments to reconcile net income to net cash flow from operating activities: |
||||||||
| Depreciation and amortization |
64.6 | 61.4 | ||||||
| Stock based compensation |
15.0 | 17.5 | ||||||
| Loss on sale of unconsolidated operation |
— | 0.8 | ||||||
| Income from unconsolidated operations |
(15.0 | ) | (15.5 | ) | ||||
| Changes in operating assets and liabilities |
(134.1 | ) | (193.4 | ) | ||||
| Dividends from unconsolidated affiliates |
11.4 | 9.7 | ||||||
| Net cash flow from operating activities |
115.3 | 23.0 | ||||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(56.7 | ) | (50.7 | ) | ||||
| Acquisitions of businesses |
(696.8 | ) | (15.9 | ) | ||||
| Net proceeds from sale of Season-All |
14.0 | — | ||||||
| Proceeds from sale of property, plant and equipment |
14.8 | 0.1 | ||||||
| Net cash flow used in investing activities |
(724.7 | ) | (66.5 | ) | ||||
| Cash flows from financing activities |
||||||||
| Short-term borrowings, net |
276.3 | 223.6 | ||||||
| Long-term debt borrowings |
503.1 | — | ||||||
| Long-term debt repayments |
(150.3 | ) | (0.3 | ) | ||||
| Proceeds from exercised stock options |
48.3 | 34.1 | ||||||
| Common stock acquired by purchase |
(10.0 | ) | (146.8 | ) | ||||
| Dividends paid |
(85.5 | ) | (78.1 | ) | ||||
| Net cash flow provided by financing activities |
581.9 | 32.5 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
11.9 | 7.6 | ||||||
| Increase/(decrease) in cash and cash equivalents |
(15.6 | ) | (3.4 | ) | ||||
| Cash and cash equivalents at beginning of period |
45.9 | 49.1 | ||||||
| Cash and cash equivalents at end of period |
$ | 30.3 | $ | 45.7 | ||||