The Wm Wrigley Company increased global sales by 13% in its first quarter to US$1.08bn as margins, earnings and profits fell with the integration costs of new brands.
Net earnings for the quarter fell to $0.40 per diluted share, compared to $0.46 for the year ago period.
Consolidated gross margins for the quarter were 51.9% versus 56.6% a year ago, reduced by restructuring charges and stock option expenses and lower margin contributions from the confectionary brands acquired last summer.
The company is integrating the Altoids, Life Savers, Creme Savers and Sugus brands into its supply chain, and has invested to put them on a higher growth trajectory in the marketplace.
Wrigley senior VP and CFO Reuben Gamoran said: “As is typically the case, new products and packaging formats take some time to reach full profitability and can have a dampening effect on margins, particularly in the short term.
“Groundwork currently being laid in terms of the acquired confectionary brands is expected to increase their margins as the year progresses, and we anticipate improvements in high-margin regions to contribute going forward.”
Consolidated operating profit was also down, by 10%, from last year’s Q1, with restructuring charges, stock option expensing and acquired confectionery products again having a slightly negative impact on operating profitability.
Wrigley chairman, president and CEO Bill Wrigley said: “Given the outstanding results of the first half of 2005, the current comparisons are especially challenging, but we remain focused on doing what is best for the long-term vitality of the business.
“Overall, given the underlying strength of our core business, we remain on track to deliver on our long-term earnings growth objective of 9 to 11%.”
Asia delivered an “outstanding” 26% increase in sales during the period, driven by volume growth in a wide range of countries and a slight boost from currency translation. First quarter sales in North America were up 30%, with almost all of the gains coming from the acquired confectionary brands.
Wrigley added: “We are confident in the strength of our core business and excited about the dynamic products and marketing campaigns that will be rolling out of our pipeline as the year progresses. First-half restructuring and integration activities and stepped-up marketing investments – particularly behind the new confectionary brands – are intensifying already tough comparisons with the first six months of 2005.
“Current supply chain initiatives are making our production network stronger, more efficient and more flexible than ever before, and we are looking for improved momentum across our overall gum and confectionary business in the back half of the year. Everyone at the company remains focused on driving growth, delivering results and creating value for our shareholders.”