McCormick & Co has reported record sales, net income and earnings per share for the Q1 ended 28 February 2002.
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Sales for the Q1 were US$519m, an increase of 4% versus Q1 2001. Excluding the impact of foreign exchange, sales increased 5% in 2002. Gross profit margin for the Q1 was 35.7%, 1.7 percentage points above last year. The gross profit margin increase was due to continued success in shifting sales to higher-margin, more value-added products, as well as higher volumes, favorable raw material costs, global procurement initiatives and efforts to improve efficiencies.
Earnings per share for the Q1 were US$0.48, up 12% year on year. Special charges did not have a significant impact on either period. The primary drivers of the Q1 earnings improvement were US$0.04 from operations and US$0.03 from interest rate, partially offset by lower income from unconsolidated operations and the effect of more shares outstanding.
Consumer Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $237,279 $228,187
Operating income 35,232 27,029
Operating income, excluding special
charges and goodwill amortization 35,570 29,915
For the Q1, sales for McCormick’s consumer business rose 4% above 2001. Excluding the net impact of foreign exchange, sales rose 6%. Sales benefited from core category growth, new products, recent new business gains and, in the US, from customer purchases in advance of a price increase. In local currency, consumer sales rose 10% in the Americas, declined 1% in Europe and rose 8% in Asia. Operating income for the consumer business was US$35m.
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By GlobalDataExcluding special charges and goodwill amortization for both years, operating income for 2002 was US$36m versus US$30m in 2001, an increase of 19%. On this same basis, operating income margin for the quarter was 15% compared to 13.1% last year as a result of higher sales, favorable raw material costs and increased efficiencies.
Industrial Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $244,482 $226,234
Operating income 23,253 19,332
Operating income, excluding special
charges and goodwill amortization 23,277 19,642
Industrial sales increased 8% in the Q1 versus last year. Excluding the net impact of foreign exchange, they increased 9% due to higher volume. In local currency, industrial sales increased 12% in the Americas, decreased 6% in Europe and increased 13% in Asia. In the Americas, sales to restaurant customers and warehouse clubs, and sales of snack seasonings were particularly strong. In Europe, the decline occurred primarily in ingredients sales, versus higher-margin, more value-added products. Operating income for the quarter was US$23m.
Excluding special charges and goodwill amortization for both years, operating income for 2002 was US$23m versus US$20m in 2001, an increase of 19%. On this same basis, operating income margin improved to 9.5% from 8.7% last year, primarily from the shift in sales to more higher-margin, value-added products, higher volumes and effective cost reduction initiatives.
Packaging Business
(in thousands) Three Months Ended
2/28/02 2/28/01
Net sales $37,145 $45,026
Operating income 2,889 5,342
Operating income, excluding special
charges and goodwill amortization 2,894 5,387
In its outlook for 2002, the company forecast difficult results from its packaging business through the H1 of the year. As projected, the packaging business reported third party sales for the quarter down 18% versus last year. Operating income (including intersegment business) for Q1 2002 was US$3m versus US$5m in 2001. The state of the economy has caused a decline in demand for products supplied to the health and personal care industry. Actions have been taken to adjust production activities, including a reduction in our workforce.
Chairman’s comments
Robert J. Lawless, chairman, president & CEO, said: “McCormick had great success in growing sales and margins for the quarter. In our consumer business, we grew worldwide sales through core products, new products and new customers, and benefited in the US from customer purchases in advance of a price increase. The growth in our industrial business came from several sectors – restaurant, snack seasonings, warehouse clubs. Our businesses in Asia continue to prosper with sales for the quarter increasing 11%. Improvement in product mix and cost reduction has driven our overall margin improvement, despite higher costs in areas such as employee benefits and insurance.
“Our financial goals for fiscal year 2002 have not changed. We continue to project 4-6% sales growth and 9-11% increase in earnings per share. As a consequence of the customer purchases in advance of our US consumer business price increase, we are likely to experience lower sales for that part of our business in the Q2. Similarly, compared to last year, earnings per share may be flat or slightly up for the second quarter. To summarize, we expect our H1 results for sales and earnings per share growth to be in line with our stated 2002 goals.
“Five years ago, the company emerged from a price war in our consumer business. At that time, we focused our resources on key strategies to grow the sales and profitability of both of our food businesses – consumer and industrial. During this time period, we grew sales at a compound annual growth rate of 6% and earnings per share at a 16% rate. Today, our company has a strong balance sheet, sound fundamentals and momentum for the future.
“As we look to the next five years, we have outlined three major strategies which build upon the successes of our past strategies. First, grow consumer business sales by leveraging our brands through accelerated innovation, brand acquisition and geographic expansion. Second, grow our industrial business sales, expanding our global flavor and food service business by enhancing our leadership position in flavors, seasonings and condiments. Third, improve margins by optimizing our global supply chain and implementing Beyond 2000. With Beyond 2000, create coordinated processes worldwide using technologies and systems, establish McCormick as a premier supplier of choice, and enable collaboration with customers.
“These strategies and our ability to execute give us the confidence to set several financial objectives through 2006. We expect to grow sales 3-7%, including sales from acquisitions. We project annual increases in operating profit of 8-10% and in earnings per share of 10-12%. In 2002, we will complete the major portion of capital expenditures related to Beyond 2000. Following this period of investment in Beyond 2000, our outlook for free cash flow is to reach US$100m in 2003 and achieve further increases through 2006. We expect EVA improvement to exceed US$10m annually over the next five years.
“We believe these strategies will guide us to continued growth and that these financial goals will maintain our position as one of the top performing food companies.
“We are in a great business – providing flavors no matter where, when or what foods are being enjoyed. I am confident that McCormick has the talent, energy and focus to achieve our goals for 2002 and the future, and to continue to deliver shareholder value.”
