US: Higher costs weigh on McCormick Q1 profits
- Operating profit flat
- Sales up 3%
- Confirms FY outlook
McCormick operating profit flat
US spice maker McCormick has reported flat first-quarter operating profit as high input costs offset sales gains.
The company said operating profit dipped slightly, falling to US$112m in the quarter from $122.5m in the comparable period of last year. Operating profit was hit by higher input costs, which were offset by sales gains and productivity initiatives.
Net profit was slightly up year-on-year, rising to $76m from $74.5m last year. The bottom line was boosted by slightly lower tax costs and a minor increase in earnings from unconsolidated operations.
Total sales increased 3% to $934m. Gains were driven by a 7% increase in revenue generated in the group's consumer business thanks to improvements in the product mix. McCormick also saw a 14% increase in sales from its consumer business in emerging markets.
Looking to the remainder of the year, McCormick reaffirmed its outlook of sales growth of 3-5% and EPS of $3.15-3.23.
McCormick Reports First Quarter Financial Results, Reaffirms 2013 Outlook
SPARKS, Md., April 2, 2013 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported first quarter financial results for fiscal year 2013 and reaffirmed its 2013 outlook.
Net sales rose 3% to $934 million, led by 7% growth in consumer business sales on strong volume and product mix.
Reported earnings per share of $0.57 compared to $0.55 in the first quarter of 2012. Cash flow from operations rose to $32 million from $23 million in the prior year.
Reaffirmed outlook for 3% to 5% sales growth in local currency and 2013 earnings per share of $3.15 to $3.23.
Alan D. Wilson, Chairman, President and CEO, commented, "Our financial results for the first quarter included strong growth in our consumer business, earnings per share slightly ahead of our initial outlook and a great start to cash flow for 2013. We were pleased to achieve these results in a challenging environment, and I thank employees throughout McCormick who are delivering high performance and contributing to our success.
"We grew consumer business sales 7% with innovation in spices and seasonings, recipe mixes and our 'regional leaders' such as Zatarain's in the U.S. and Vahine in France. Digital media, in-store merchandising and other brand marketing support also drove our growth in the first quarter. We had particularly strong performance in emerging markets where we increased consumer business sales 14%. As expected, our industrial business had a slower start to the year. Compared to a 13% rate of sales growth in the first quarter of 2012, industrial business sales declined 2% in the first quarter of 2013. Demand has been weak in certain markets, including quick service restaurants in the U.S. and China, although we expect some recovery in the upcoming quarters. We reaffirm our overall expectation to increase sales 3% to 5% and achieve earnings per share of$3.15 to $3.23."
McCormick's first quarter sales rose 3%, led by pricing actions taken in response to higher material costs. Volume and product mix added 1% to sales growth. In the first quarter of 2013, the company had expected the increase in volume and product mix for its consumer business to exceed that of the industrial business. Volume and product mix for the consumer business grew 5%, driven mainly by product innovation and brand marketing support, with increases in each of the three geographic regions: the Americas, Europe, Middle East and Africa (EMEA) and Asia/Pacific. For the industrial business, volume and product mix declined 5%, largely due to weaker demand from quick service restaurants and comparison to a strong growth rate in the first quarter of 2012.
Operating income of $112 million was comparable to the year ago period, with higher sales and cost savings from McCormick's Comprehensive Continuous Improvement program, (CCI), offset by the unfavorable impact of higher material costs and an increase of approximately $5 million in retirement benefit expense. While brand marketing support was $4 million lower in the first quarter of 2013, the company spent an additional $3 million for increased price promotions and paid allowances to gain distribution for new items. Earnings per share grew to $0.57 from $0.55 in the first quarter of 2012, due in part to a favorable tax rate, higher income from unconsolidated operations and reduced shares outstanding.
Cash flow from operations was $32 million in the first quarter of 2013 compared to $23 million in the year-ago period. This improvement was mainly the result of a slight decrease in inventory in this period versus the first quarter of 2012, when inventory was a use of cash. Due to the seasonality of McCormick's business, cash flow from operations typically increases significantly in the second half of the fiscal year.
The company reaffirmed its expectation to grow sales 3% to 5% in local currency, largely from higher volume and product mix and expects a minimal impact of foreign currency exchange rates based on current rates. The company also reaffirmed guidance for a 6% to 8% increase in operating income, including projected CCI cost savings of at least $45 million. The company's outlook for 2013 earnings per share continued to be in a range of $3.15 to $3.23. This includes the projected unfavorable impact of $0.11 from increased retirement benefit expenses. In the second quarter of 2013, the company plans to increase brand marketing support approximately $5 million. Also in the second quarter of 2013, the company expects the continuation of higher material costs and an unfavorable impact of approximately $5 million from increased retirement benefit expense. As a result of the unfavorable impact of these factors, earnings per share in the second quarter of 2013 are expected to be comparable to $0.60 earnings per share that the company reported in the second quarter of 2012. With the higher cash flow achieved in the first quarter, the company expects another year of strong cash generation in 2013. The company plans to update its 2013 fiscal year outlook upon the completion of the previously announced agreement to acquire Wuhan Asia Pacific Condiments Co., Ltd., which is expected to occur in mid-2013.
Original source: McCormick
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