Tuesday, specialty food company McCormick & Co. Inc. (MKC) posted a higher profit in the first quarter, flavored by the acquisition of spice maker Lawry's and eat-at-home trends, as health and budget conscious shoppers flocked to less pricey products. Further, the company reaffirmed fiscal 2009 earnings forecast, but cautioned that sales growth could be at the lower end of its prior target, due to weak sales in some parts of the business.
The Sparks, Maryland-based company's first-quarter net income totaled $57.7 million or $0.44 per share, compared to $51.4 million or $0.39 per share in the prior year quarter.
On an adjusted basis, net income advanced to $58.0 million or $0.44 per share from $54.1 million or $0.41 per share in the comparable quarter of the previous year.
On average, 9 analysts polled by Thomson Reuters expected the company to report earnings of $0.44 per share for the quarter. Analysts' estimates typically exclude special items.
Quarterly net sales edged down 1% to $718.5 million from the previous year's sales of $724.0 million, and fell short of seven Wall Street analysts' consensus revenue estimate of $755.41 million for the quarter.
The company's consumer business sales advanced 2% over last year and increased 9% in local currency, primarily driven by acquisitions. During the first quarter, the mix of sales in several markets shifted toward dry seasoning mixes and value-priced products with lower volumes of other items including premium priced products.
Consumer sales in the Americas rose 11% and grew 13% in local currency, while consumer sales in EMEA declined 13%, but rose 2% in local currency. First-quarter sales in the Asia/Pacific region fell 6%, but rose 4% in local currency driven by a double-digit increase in volume and product mix in China.
For the industrial business, sales decreased 5%, but grew 5% in local currency, with particularly strong increases in each of the three operating regions. Industrial sales in the Americas dropped 1%, but grew 4% in local currency. In EMEA, industrial sales declined 21%, but increased 9% in local currency, and sales in Asia/Pacific region were flat, but rose 7% in local currency.
What's In Store For FY09?
Looking ahead, the spices and seasonings company expects higher sales, a favorable business mix and cost savings to result in 2009 earnings of $2.24 - $2.28 per share. This is an increase of 7% - 9% versus 2008 on a comparable basis, which excludes the impact of restructuring charges and unusual items. Analysts are projecting earnings of $2.30 per share for fiscal 2009.
The company expects full-year sales to be at the lower end of its 2% - 4% projected growth range, due to the first-quarter sales weakness in certain parts of the business. This range includes an estimated 7% reduction from unfavorable currency exchange rates.
For the third quarter, the company expects earnings to rise at a greater rate than in the second quarter due to marketing support. For the fiscal year, the company plans to increase its marketing support by $20 million and expects a significant portion of this to occur in the second quarter, as the company features the U.S. revitalization of its dry seasoning mixes and launches a comprehensive marketing campaign for Lawry's.
The company noted that it is working to reduce costs with the completion of its restructuring program and the on-going savings generated from its Comprehensive Continuous Improvement or CCI program. Projects under the CCI program span each location and business unit and include cost optimization, cost avoidance and productivity improvements.
Further, the company stated that the CCI program and restructuring actions leads them on track to achieve $30 million in cost reductions this year. With the benefit of cost savings and higher sales, McCormick believes that it could build shareholder value in 2009 and are reaffirming the profit goal that was originally set in January.
Among McCormick's rivals, International Flavors & Fragrances Inc. (IFF) posted higher profit in fourth-quarter, boosted by tax benefits from prior years' tax settlements. On an adjusted basis, earnings per share declined from the year-ago quarter, but surpassed the Street view. Further, the company said it remain cautiously optimistic about 2009.
McCormick is currently trading at $31.49, down $1.95 or 5.83%. The stock has been moving between $28.21 and $42.06 in the past 52 weeks.
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