US: McCormick sees sales, earnings edge up
McCormick predicts a positive 2014 after a successful last year
McCormick & Co. booked an increase in full-year sales and adjusted earnings, boosted by it acquisition of WAPC in China and investments in brand building and innovation.
The US spice maker booked a 3% sales increase during 2013, with net revenue rising to US$4.1bn. McCormick attributed "about half" of this gain to the WAPC acquisition.
Operating income was recorded at $550.5m for the full year, down from $578.3m last year. Adjusted operating income was $591m in 2013 compared to $578m in 2012.
The favourable impact of higher sales and CCI cost savings were offset in part by a $20m increase in retirement benefit expense, a $10m increase in brand marketing support and higher material costs, the company said.
Adjusted net income rose 3% to $418.2m, up from $407.8m.
Looking to 2014, McCormick predicted growth of between 3-5% of sales and 6-8% of operating income. The group said it is responding to "competitive activity" "with increased brand marketing, accelerated innovation and improved agility".
McCormick Reports Financial Results for Fourth Quarter 2013 and Provides 2014 Financial Outlook
SPARKS, Md., Jan. 29, 2014 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported sales and profit results for the fourth quarter ended November 30, 2013 and provided a financial outlook for fiscal year 2014. Adjusted operating income and adjusted earnings per share exclude the impact of special charges and the loss on a voluntary pension settlement recorded in the fourth quarter.
-- McCormick grew fourth quarter sales 2% and reported earnings per share
of $0.98. Adjusted earnings per share was $1.20, an 8% increase from
$1.11 in 2012.
-- For the fiscal year, the company grew sales 3% and reported earnings per
share of $2.91. Adjusted earnings per share of $3.13 rose 3% from $3.04
in 2012, despite a significant increase in retirement benefit expense.
Cash flow from operations reached $465 million and the company returned
a record $357 million to its shareholders through dividends and share
-- In fiscal year 2014, the company expects to grow sales 3% to 5% and
operating income 6% to 8% from $551 million of adjusted operating income
in 2013. Earnings per share is projected to be in a $3.22 to $3.29
range, which includes the unfavorable impact of a significant increase
in the 2014 tax rate when compared to the 2013 tax rate.
Alan D. Wilson, Chairman, President and CEO, commented, "During 2013, we achieved solid sales and profit growth in a number of key markets, completed a significant acquisition in China, delivered significant cost savings with our Comprehensive Continuous Improvement (CCI) program and reported record cash flow. Employees throughout McCormick are fully engaged in our business and dedicated to our success. Looking ahead to 2014 and beyond, we are excited about our growth prospects as consumers around the world explore new flavors and drive demand. As a global leader in developing and delivering great flavor for all types of eating occasions, McCormick is well-positioned to meet this demand.
"Our fourth quarter performance varied across our portfolio of businesses. We grew consumer business sales and profit at or above our plans in a number of international markets, with particular strength in China. The recently acquired Wuhan Asia Pacific Condiments (WAPC) business exceeded our expectations with more than $30 million of sales, and we achieved a double-digit increase in base consumer business sales in China. In the U.S., the retail category for spices and seasonings maintained a solid mid-single digit growth rate in the fourth quarter. However, the category growth this period exceeded our branded sales performance. In 2014, we are responding to this competitive activity with increased brand marketing, accelerated innovation and improved agility to rapidly address marketplace challenges and pursue growth opportunities. Our industrial business had a strong finish to the year, with sales in local currency up 3% and an increase of more than 50% in adjusted operating income. For the total company, we grew adjusted operating income 7% and adjusted earnings per share 8% from the year-ago result. Our business generates significant cash and our cash flow from operations was especially high in the fourth quarter to end the year at a record $465 million. We are committed to returning a portion of cash to our shareholders and have increased our dividend in each of the past 28 years. Through McCormick's dividend payout and share repurchases, annual cash returned to shareholders reached $357 million in 2013, exceeding $300 million for the first time.
"Our outlook for increased sales and operating income in 2014 is based on our growth initiatives underway around the world. For our consumer business, we are driving sales with a robust pipeline of innovation and a significant increase in our brand marketing. We expect to increase industrial business sales and profit through new product development and support for the international expansion of our customers. Across both businesses, CCI cost savings will continue to fuel our growth and we expect 2014 to be another year of strong cash flow."
Fourth Quarter 2013 Results
McCormick's fourth quarter sales rose 2% from the year-ago period. In local currency the increase was 3%. The acquisition of WAPC, completed in May 2013, contributed 3% to sales. Pricing actions, product innovation and brand marketing also contributed to the fourth quarter result, with increases in both the consumer and industrial business. However, these increases were largely offset by a shift in sales that lowered the fourth quarter growth rate by an estimated 3%. As previously reported, the company estimates that $30 million of consumer business sales in the U.S. shifted from the fourth quarter into the third quarter due to greater retailer response to its holiday display program and retailer purchases in advance of a price increase.
Operating income was $174 million in the fourth quarter. Fourth quarter adjusted operating income of $214 million in 2013 rose $14 million from the year-ago result of $200 million. Higher sales, CCI cost savings and a favorable mix of business contributed to this result. These increases to adjusted operating income were offset in part by a $7 million increase in brand marketing support, $5 million of higher retirement benefit expense and increased material costs.
Earnings per share was $0.98 in the fourth quarter. Adjusted earnings per share was $1.20. When compared to the fourth quarter of 2012, adjusted earnings per share rose 8%. This rate of growth was the result of higher adjusted operating income, lower interest expense and fewer shares outstanding.
Fiscal Year 2013 Results
For the fiscal year ended November 30, 2013, McCormick net sales were $4.1 billion, an increase of 3% from 2012, with about half of the increase due to the acquisition of WAPC. Product innovation, brand marketing support and pricing actions also contributed to higher sales. Each region of the consumer business - Americas, Europe, Middle East and Africa (EMEA) and Asia/Pacific - grew sales, with particular strength in China. For the industrial business, higher sales were led by the EMEA and Asia/Pacific regions. A slight decline in the Americas related to a period of weak demand from quick service restaurants. Across both business segments, the percentage of sales in emerging markets reached 15% in 2013, compared to 10% in 2011.
Operating income was $551 million. Adjusted operating income was $591 million in 2013 and compared to $578 million in 2012. The favorable impact of higher sales and CCI cost savings, were offset in part by a $20 million increase in retirement benefit expense, a $10 million increase in brand marketing support and higher material costs.
Earnings per share for the fiscal year was $2.91. Adjusted earnings per share was $3.13 and compared to $3.04 earnings per share in 2012, with the increase due to higher adjusted operating income, increased income from unconsolidated operations and fewer shares outstanding.
The company reported $465 million in net cash flow from operating activities in 2013, compared to $455 million in 2012. While pension plan contributions were lower in 2013 than 2012, inventory rose as a result of strategic raw material purchases and higher material costs. Following its acquisition of WAPC in mid-2013, by fiscal year-end the company had returned to a debt level that approached its target. In the fourth quarter, McCormick completed a $400 million share repurchase program authorized in June 2010 and began to repurchase shares under a new $400 million authorization approved April 2013. For fiscal year 2013, the company returned $357 million of cash to shareholders through dividends and share repurchases, an increase of 20% from $297 million in 2012.
2014 Financial Outlook
McCormick expects further growth in consumer demand for flavor. Through 2016, Euromonitor International projects that global retail sales for the herbs and spices and recipe mixes categories will increase at a 2% to 3% compound annual growth rate. These are McCormick's two largest consumer business growth platforms and the company expects to participate in this growth through initiatives driving innovation, brand marketing and acquisitions. The company expects to grow industrial sales as well, through innovation and expanded distribution.
Based on this outlook, in 2014 the company expects to grow sales in a 3% to 5% range driven by higher volume, pricing and the incremental impact of the WAPC acquisition in the first half of the year. Operating income is projected to grow 6% to 8% from $591 million adjusted operating income in 2013. CCI projects for 2014 are underway and the company anticipates cost savings of at least $45 million. Plans are in place to invest at least $25 million in increased brand marketing support to drive sales of new products as well as core items. The company expects to record $2 million of special charges in 2014.
McCormick projects 2014 earnings per share to be in the range of $3.22 to $3.29, an increase of 3% to 5% from adjusted earnings per share of $3.13 in 2013. Higher sales, a more favorable mix of business and CCI cost savings are expected to drive profit growth in 2014. The company anticipates that these increases will be offset in part by the effect of a higher tax rate and an estimated $0.01 of special charges, which together have an unfavorable impact of 5% to 6% on the 2014 earnings per share growth rate. The projected increase in the tax rate is due to the discontinuation of the R&D tax credit, a tax law change in France and the expected mix of income across tax jurisdictions. In addition, the tax rate in 2013 included $3.9 million of favorable discrete tax items.
In the first quarter of 2014, the company expects earnings per share to be comparable to $0.57 in the first quarter of 2013, primarily as a result of a planned increase of at least $7 million in brand marketing support and a higher tax rate, as well as a lower rate of growth in its U.S. businesses in the first part of the fiscal year.
Original source: McCormick & Co.
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