US spice company McCormick has reported sales of US$604m in the first quarter ended 28 February 2005, compared with $572m in the same period last year.

Income from consolidated operations before income taxes was $47m, compared with $52m in the year earlier period.

Despite higher sales, a strong performance by the company's joint venture in Mexico, and lower shares outstanding, earnings declined as a result of a lower gross profit margin, higher interest rates and a higher tax rate, the company said.

Gross profit margin for the first quarter of 2005 was significantly impacted by vanilla. The company purchased a strategic supply of vanilla beans in 2003 to ensure an ongoing supply of quality product for customers and manage the cost of this raw material. However, a larger than expected crop has caused vanilla bean costs to drop rapidly and as projected, the company is experiencing significant margin pressure, particularly in the industrial business. This situation is expected to have a significant impact through the first half of 2005. The performance of the industrial business in Europe also had a negative impact on first quarter gross profit margin.

"While sales and profits did not meet our expectations for the first quarter, we reaffirm our growth targets for 2005," said Robert J. Lawless, chairman, president and CEO.

Sales were positively impacted by the acquisition of European spice company C.M. van Sillevoldt B.V. which trades under the name Silvo, favourable foreign exchange rates, new product launches and effective marketing programmes, he said. "These sales gains were offset in part by a reduction in inventory levels by certain retail customers as well as the continuation of difficult market conditions in our European consumer business. Margins were down in the quarter, and we are working through the situation with vanilla and lower profits from our industrial business in Europe."