US spice giant McCormick & Co. has warned that rising commodity costs could have an impact on the company’s innovation plans in the year ahead.
Speaking on a conference call yesterday (26 January) following the publication of the full-year results, Alan Wilson, McCormick’s chairman, president and CEO, said that the cost inflation the company is facing is “steep as well as broad-based”.
“We are seeing increased activity in innovation, both driven by our customers, both our food service customers as well as our food manufacturer customers, and we are certainly stepping up our innovation activity,” Wilson said. “There’s a recognition clearly across the industry that we have to innovate to grow.”
However, he added: “And I’d say the one question mark on that is the impact of increased pricing and whether that will impact our customers’ willingness to really go forward with a lot of the innovation as planned.”
McCormick yesterday booked an increase in full-year profits, driven by product innovation and expanded distribution during the year. For the 12 months to the end of November, profits increased 14.7% to US$370.2m.
Operating profit climbed 5.5% to $509.8m. Sales reached $1.99bn, up from $1.91m a year ago.
Wilson said that, despite the growth, operating profit had been impacted by rising raw and packaging material costs.
“We take in price increases for both our brand and the private-label products that we supply. Across our various markets and product line, this increase averaged 3%,” Wilson said. “This is similar to the price increase that we took in our consumer business in both 2008 and 2009.”
Nonetheless, Gordon Stetz, CFO of McCormick, said the firm will continue to increase marketing spend “at a high percentage rate”.
“Social and digital media…. that is becoming a very effective spend and where the consumers are getting our message,” Stetz said. “We’re still going to continue to support our products in France and the UK, as well as in our other consumer markets like China. And we’ve got a healthy mix of core products and new product advertising in the US.”
Stetz added: “We’ve got some really good new products that we’re introducing in the US that we want to make sure that we support as well. But I think just like everybody else, you’ll see more of a mix driving to social media because that’s where the consumer is getting their information.”
Asked about acquisitions in 2011, Wilson said the environment was currently “pretty active”.
“It looks more active, I think. than it has for us at least in the last couple of years,” Wilson said. “And as you’ve seen, we’ve done a very good job of paying down our debt from the Lawry’s acquisition and so we have a pretty good pipeline that we are working against.”
Looking ahead, McCormick said it expects sales to grow 5% – 7% in local currency. New products, brand marketing and expanded distribution -in both developed and emerging markets – are expected to grow sales 2%-4%, the firm said.
Earnings per share are expected to be in a range of $2.80 to $2.85 – a 6% – 8% increase from 2010 on a comparable basis.
Shares in McCormick closed down 3.4% at US$44.74 at close of trading yesterday.
For more from the McCormick & Co. conference call, please visit Seeking Alpha.