On the money: McCormick in talks on more acquisitions - CEO
US spice and flavours firm McCormick has said that it plans further acquisitions in 2013, as it seeks to claw back share price value lost following its results statement this week.
Speaking to analysts on a conference call yesterday (23 January), McCormick's CEO, Alan Wilson, said that acquisitions are right up there alongside share buy-backs as a potential way of returning cash to shareholders in the year ahead.
"We are always in the market," said Wilson. "We see some level of [M&A] activity. I would say it's not as robust as we've seen in some years, but we still have some good targets and continue conversations at expanding our footprint," he added.
McCormick has been under pressure after worse-than-expected fourth-quarter profits and muted forecasts for 2013 saw the spice giant's share price slide by around 8% yesterday. It was down by a further 1% morning trading in New York today.
The group's CFO, Gordon Stetz, told analysts that both acquisitions and share buy-backs could coincide in 2013. "Given where we are with our targeted debt level and the amount of cash we generate, depending on the acquisition size, we've historically been able to do both share repurchase and acquisitions, and that's our intention as we go into this year," he said.
Janney analysts had already sketched out glum prospects for McCormick in the 12 months ahead. "Looking ahead to 2013, the company is staring at difficult industrial volume comps, sluggish European and Chinese markets, continued cost inflation (+3%), and minimal pricing; not to mention higher tax rates and retirement benefit expenses," they said.
The firm itself was keen to strike an upbeat tone, forecasting that, although sales momentum will slow and profits will be hit by pension charges, the company will still grow in low-to-mid single digits at the top and bottom line for the year.
Company officials also sought to emphasise McCormick's rising presence in emerging markets, particularly in Asia.
In August last year, the group agreed a deal to buy Chinese bouillon maker Wuhan Asia-Pacific Condiments Co for CNY900m (US$141.5m).
Wilson said McCormick is building scale in China, although results there are mixed. The firm has been hit by the knock-on effects of current food safety scares around fast-food chicken. KFC owner Yum! Brands has found itself at the centre of the scandal, which focuses on levels of antiviral drugs and hormones in poultry meat.
On the other hand, Wilson said McCormick's direct-to-consumer business is growing well in China.
In the group's main North America market, the firm intends to continue targeted price promotions on certain products. It also sees a fuller innovation pipeline at key consumer food customers, something that was lacking last year. "That does encourage us as we go into the second half of the year," said Wilson.
Yesterday, McCormick McCormick reported net sales for the 12 months to the end of December up by 8.6% to US$4bn, marking a doubling of group sales in the past decade. Net profits increased by 9% to $407.8m, although operating profits trailed slightly with a 7% increase to $578m.
Executive comments were sourced from a transcript of the conference call on Seeking Alpha.
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