On the money: McCormick consumer unit rebound boosts shares
McCormick saw EBIT from its consumer division increase 15% in its fiscal second quarter
Shares in US spice manufacturer McCormick & Co. rose today (27 June) after the company reported a recovery in profits from its consumer business.
McCormick, which sells consumer products under brands like Schwartz as well as B2B spices and flavours, saw EBIT from its consumer division increase 15% in its fiscal second quarter, which ran until the end of May.
In the first three months of McCormick's financial year, EBIT from its consumer arm had fallen by more than 6%, hitting the company's overall first-quarter profits.
"Though results were very in line with Street expectations at a consolidated level, with McCormick posting significant improvement in its consumer business and maintaining its full-year guidance despite a difficult overall operating environment, we believe there is enough in this morning's release for shares to open a bit higher on this morning's open," Barclays Capital analyst Andrew Lazar wrote in a note to clients after McCormick's results were announced.
The rebound in profits from McCormick's consumer division pushed up its shares today. Its stock stood at US$59 at 14:14 ET, an increase of 2.75% on the day.
Higher sales boosted profits from McCormick's consumer business. Industry watchers have been watching FMCG companies sales volumes. In some markets, sales volumes have fallen across the industry as consumers have baulked as price increases pushed through by manufacturers battling higher input costs.
McCormick said its volumes in the Americas in the second quarter were "comparable" with the same period a year earlier despite its decision to increase prices.
On a conference call with analysts, JP Morgan Chase analyst Ken Goldman asked if McCormick attributed its steady volumes in the US to the category in which it operates or its own actions.
"We saw a short-term volumes decline when we took pricing," chairman, president and CEO Alan Wilson said. "As consumers have gotten use to it and lived out of their pantries for a little while, we're starting to see some return to volume. We're also continuing to put the pressure on with new product innovation, we've increased our advertising spend. We're fortunate we're in a good business, there's no question about that, but we're also being proactive to make sure we give consumers reason to continue to buy our products. Private-label pricing has started to close some of those gaps."
McCormick saw its sales volumes from its consumer products increase in Europe, not only from its recent acquisition of Polish firm Kamis but also from elsewhere in the business. Sales from McCormick's base business increased 5% thanks to "volume and mix" in France and the UK.
Deutsche Bank analyst Eric Katzman, who said McCormick had had a "good quarter in a tough environment" asked why the company had "out-performed" some of its peers in Europe and why investors should think that could continue.
Wilson said there was an "underlying lack of confidence in Europe" but said McCormick's Vahine brand in France "continues to perform pretty well" and insisted the company had benefited from new products supported by new advertising. He added: "One thing that is helping us is that Kamis continues to grow pretty well. Poland, while the currency is weakening a little bit, continues to be a roubust economy for us."
Wilson said McCormick was "very, very pleased" with the impact of the Kamis acquisition. The Polish business, he said, offered McCormick "a lot of opportunities" in the region. He added the company was launching products in Poland under the brand that it had on sale elsewhere and was also expanding distribution in Russia through the brand.
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