McCormick Barely Beats - Analyst Blog

McCormick & Company Inc. (MKC) posted robust fiscal 2009 fourth-quarter results before the opening bell on Thursday. The company recorded a 41% growth in GAAP net income to $116.4 million from $82.5 million in the year-ago quarter. Excluding restructuring charges, earnings per share came in at 91 cents per share, which edged past the Zacks Consensus Estimate of 90 cents. 

Net sales for the quarter increased 1.9% year-over-year to $924.5 million, primarily driven by a 4.3% growth in the Consumer Business segment partially offset by a 2.3% decline in the Industrial Business segment. The successful acquisition of Lawry's and pricing actions undertaken by the company also helped the top-line expansion. McCormick acquired Lawry's branded seasoning blends and marinades business from Unilever Plc. (UL) in 2008. 

The Consumer Business segment’s growth was mainly attributable to pricing actions, which contributed 3% to sales. Moreover, McCormick also recorded a slight increase in volumes and mix, due to a rise in sales in the Americas, including the impact of the Lawry's acquisition. 

Sales at McCormick’s Industrial business segment declined primarily due to volume and product mix, which reduced sales by 3%. However, the decrease was partially offset by pricing actions which led to a 1% growth in top-line in local currency terms. 

During the quarter, gross margin improved by 190 basis points (bps) to 45.6%, compared to 43.7% in the prior-year period. The growth was primarily the result of favorable business mix as well as McCormick’s cost reduction initiatives under its on-going Comprehensive Continuous Improvement (CCI) program. 

McCormick’s operating margin recorded a strong growth of 42% to $178.0 million, while operating margin expanded by 540 bps to 19.3%. The increase was primarily attributable to higher sales and gross margin, lower restructuring charge, and absence of an impairment charge, which existed in the year-ago quarter. 

Moving forward, McCormick expects sales to grow by 4-6% in fiscal 2010, while EPS is expected between $2.49 and $2.54. The guidance is in-line with the Zacks Consensus Estimate of $2.52 per share, derived from 9 covering analysts, which has moved up a penny over the past month. 

Management also anticipates gross margin to increase by 50 bps in fiscal 2010, primarily from cost savings of $35 million to $40 million related to CCI initiatives. The company also plans to invest $20 million of these savings for additional marketing support for new products. 

McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry, globally.
Read the full analyst report on "MKC"
Read the full analyst report on "UL"
Zacks Investment Research