Sparks, Md.-based spices and seasonings firm McCormick & Co has reported sales of of US$553m for its Q2 ended 31 May 2002, up 4% year on year.
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The company said that majority of the increase was due to higher volume, achieved through strong sales of both core items and new products, and the positive impact of the timing of certain customer purchases.
Gross profit margin for the Q2 was 34.9%, 0.9 percentage points above last year. This was attributed to higher volumes, continued success in shifting sales to higher-margin, more value-added products, as well as favourable raw material costs, global procurement initiatives and ongoing efforts to improve efficiencies.
Earnings per share for the Q2 were US$0.24, versus US$0.19 in 2001. Excluding goodwill amortisation, Q2 earnings per share were US$0.21 and comparable basis, earnings per share for the Q2 increased 14%. The drivers of the Q2 earnings increase were US$0.02 from operations and US$0.01 from interest expense.
Special charges for the period were costs associated with previously announced streamlining actions that could not be accrued last year. They include costs of the consolidation of manufacturing in Canada and the closure of a US distribution center.
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By GlobalDataConsumer business
In the Q2, sales for McCormick’s consumer business rose 6% above 2001, with higher sales of new products as well as core products. Sales in the Americas benefited from customer purchases in advance of the company’s US implementation of new systems under its “Beyond 2000” (B2K) programme, offset in part by lower Q2 sales resulting from higher customer purchases in advance of a US price increase at the end of the Q1.
Operating income for the consumer business was US$31m in the Q2. Excluding special charges and goodwill amortisation for both years, operating income for 2002 was US$32m versus US$29m in 2001, an increase of 10%. Income from strong sales was partially offset by poor performance and charges for inventory and receivables write-offs in the UK brokerage business.
Industrial business
For the Q2, industrial sales increased 5% versus last year. Higher volume drove this increase. In local currency, industrial sales increased 4% in the Americas, 3% in Europe and 9% in the Asia/Pacific region. In the US, customer purchases in advance of the implementation of Beyond 2000 had a positive impact on sales to food service customers. Seasonings and flavours sales were also strong in the US Operating income for the quarter was US$27m. Excluding special charges and goodwill amortisation for both years, operating income for 2002 was US$28m versus US$25m in 2001, an increase of 12%. The increase was due to higher volumes, a shift in sales to more higher-margin, value-added products, and effective cost reduction initiatives.
Packaging business
As expected, difficult results from the packaging business continued through the H1 2002. The packaging business reported third party sales for the quarter down 7% versus last year. Operating income (including intersegment business) for the Q2 2002 declined to US$5m from US$6m in 2001. Midway through 2001, the state of the economy 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. At the end of the Q2, customer demand for packaging is beginning to show signs of recovery.
Chairman’s comments
Robert J. Lawless, chairman, president & CEO, said: “McCormick had good sales growth and margin improvement through the H1 of our fiscal year.
“Based on our outlook for the next two quarters, our guidance for FY 2002 is consistent with our original targets: 4-6% sales growth, 50-75 percentage points gross profit margin improvement, and 9-11% earnings per share increase.
“For the Q3, sales will be slightly above last year. We expect that earnings per share for the Q3 will range from US$0.24 to US$0.25. Sales and earnings are expected to return to strong growth for the Q4, with sales strength in our core consumer and industrial businesses, continued margin improvement, recovery in our packaging business and a more positive foreign exchange environment.
“Several recent accomplishments at McCormick this quarter are also noteworthy. On 5 June 2002, our first operating units converted, on schedule, to the new processes and systems of our B2K programme. This conversion has occurred smoothly, and we continue to progress with our B2K efforts.
“Also this quarter, McCormick opened a new sensory facility in our Hunt Valley based Technical Innovation Center, which offers our industrial customers and our consumer business a capability for determining consumer preferences. In our Asia/Pacific region, responsibility for our industrial business across the entire region has recently been consolidated to better align McCormick with the key multi-national customers we serve.
“Our employees are pursuing sales and profit growth across all of our global businesses. To achieve this growth, the company is making key investments in initiatives like Beyond 2000, product innovation, and organisational improvements. McCormick is committed to delivering shareholder value, and I am confident that we will achieve our goals for 2002.”
