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|McCormick Reports Record Results for First Quarter of 2007|
Click Here for Q1 2007 Earnings Release in PDF format
SPARKS, Md., March 27 /PRNewswire-FirstCall/ -- McCormick & Company, Incorporated (NYSE: MKC), today reported record results for the first quarter ended February 28, 2007.
Robert J. Lawless, Chairman and CEO, commented, "With our first quarter financial results, fiscal year 2007 is off to a great start. The restructuring actions begun in late 2005 are delivering significant cost savings and sustainable margin improvement. Initiatives to grow our business are driving sales in a number of our regions around the world. This added up to an outstanding quarter and gives us increased confidence that 2007 will be another record year for McCormick."
Sales in the first quarter rose 7%, including the impact of foreign currency which added 3%. Higher volume from Simply Asia Foods acquired in mid-2006, new products, ethnic items and convenience items contributed to this increase, as well as pricing actions. First quarter sales included the impact of actions taken to reduce low margin business, which decreased sales 1%. Gross profit margin rose 1.3 percentage points to 40.5% as a result of cost savings and a more favorable business mix.
Earnings per share were $0.33 compared to $0.11 in the first quarter of 2006. Charges related to the Company's restructuring program reduced earnings per share $0.04 in the first quarter of 2007 compared to $0.17 in the first quarter of 2006. Excluding the impact of restructuring charges, earnings per share rose $0.10, a 37% increase. This increase was due to higher sales and improved gross profit margins, as well as $.02 from the quarterly timing of 2007 stock-based compensation expense and $.01 from a lower tax rate.
On a comparable basis which excludes restructuring charges, the Company set a goal to increase 2007 earnings per share by 8-10%. While the first quarter earnings per share increase on a comparable basis exceeded 8-10%, this was partly due to the timing of certain expenses and a greater impact from restructuring cost savings in the earlier quarters of 2007. Financial performance ahead of the Company's goal will provide an opportunity to fund additional growth initiatives. As a result, including estimated restructuring charges of $0.18, projected 2007 earnings per share remain $1.67-$1.71. However, based on the outstanding first quarter results, the Company has indicated that it is likely to achieve earnings per share at the upper end of this range.
Business Segment Results Consumer Business (in thousands) Three Months Ended 2/28/07 2/28/06 Net sales $374,769 $344,764 Operating income 54,842 24,868 Operating income excluding restructuring charges 60,187 46,205
For the first quarter, sales for McCormick's consumer business rose 9% and 6% in local currency. This increase was driven by higher volume and pricing actions. Higher volume was due to the incremental sales of Simply Asia Foods acquired in mid-2006, new products and effective marketing programs. Consumer sales in the Americas rose 10% due to higher volume from Simply Asia Foods, new products and marketing support, as well as pricing. Foreign currency had no sales impact. Consumer sales in Europe increased 6%, but in local currency declined 4%. This business continues to be affected by distribution lost to a competitor in The Netherlands and the Company's decision in 2006 to exit its business in Finland. Also, prior year sales benefited from customer purchases in advance of the implementation of SAP in this region. In the Asia/Pacific region, sales rose 14% and in local currency 9% with significant gains in China.
For the first quarter, consumer business operating income excluding restructuring charges rose to $60.2 million from $46.2 million in 2006, an increase of 30%. This significant increase was due to higher sales and improved gross profit margin, as well as lower stock-based compensation expense. Advertising expense increased $2.0 million in the first quarter.
Industrial Business (in thousands) Three Months Ended 2/28/07 2/28/06 Net sales $277,870 $264,937 Operating income 11,509 (575) Operating income excluding restructuring charges 14,003 11,466
For the first quarter, sales for McCormick's industrial business increased 5% and 3% in local currency, due to increased volume with strategic customers. The impact of the Company's actions to eliminate lower margin customers and products reduced sales in the first quarter by 2%. Industrial sales in the Americas were down 0.5% from the first quarter of 2006 and down 0.2% in local currency. The elimination of lower margin customers in this part of the industrial business reduced sales 2%. In Europe, sales rose 19% and 8% in local currency with continued increases in seasonings for poultry and for snack products. In this region, the elimination of lower margin customers reduced sales 2%. Sales in the Asia/Pacific region rose 24% and 18% in local currency with significant gains in both China and Australia.
For the first quarter, industrial business operating income excluding restructuring charges rose to $14.0 million from $11.5 million in 2006, an increase of 22%. This increase was due to higher sales and improved gross profit margin, as well as lower stock-based compensation expense.
Non-GAAP Financial Measures
The pro forma information excluding restructuring charges in this press release are not measures that are defined in generally accepted accounting principles ("GAAP"). These items are measures that management believes are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating our earnings growth prospects. These non-GAAP measures are used by management as a performance measure to judge profitability of our business absent the restructuring related items. Management analyzes the Company's business performance and trends excluding amounts related to the restructuring. These measures provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.
Pro forma Information
The Company has provided below certain pro forma financial results excluding amounts related to a restructuring program in 2006 and 2007.
(in thousands except per share data) Three Months Ended 2/28/07 2/28/06 Net income $44,228 $14,388 Less: Impact of restructuring charges 5,621* 22,697* Pro forma net income $49,849 $37,085 Earnings per share - diluted $0.33 $0.11 Less: Impact of restructuring charges 0.04 .17 Pro forma earnings per share - diluted $0.37 $0.27 % increase versus prior period 37.0% Earnings per share figures may not add due to rounding. * The impact of restructuring activity on net income includes: Restructuring charges included in Cost of good sold $(475) $(214) Restructuring charges (7,364) (33,164) Tax impact included in income taxes 2,508 10,681 Charges related to unconsolidated operation (290) - $(5,621) $(22,697) Live Webcast
As previously announced, McCormick will hold a conference call with the analysts today at 10:00 a.m. ET. The conference call will be web cast live via the McCormick corporate web site. Go to ir.mccormick.com and follow directions to listen to the call and access the accompanying presentation materials. At this same location, a replay of the call will be available following the live call. Past press releases and additional information can be found at this address.
Certain information contained in this release, including expected trends in net sales and earnings performance, are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward- looking statements are based on management's current views and assumptions and involve risks and uncertainties that could be materially affected by external factors such as: actions of competitors, customer relationships, ability to realize expected cost savings and margin improvements, market acceptance of new products, actual amount and timing of special charge items, removal and disposal costs, final negotiations of third-party contracts, the impact of the stock market conditions on its share repurchase program, fluctuations in the cost and availability of supply chain resources and global economic conditions, including interest and currency rate fluctuations, and inflation rates. The Company undertakes no obligation to update or revise publicly, any forward-looking statements, whether as a result of new information, future events or otherwise.
McCormick & Company, Incorporated is the global leader in the manufacture, marketing and distribution of spices, seasonings and flavors to the entire food industry -- to foodservice and food manufacturers as well as to retail outlets.
First Quarter Report McCormick & Company, Incorporated Consolidated Income Statement (Unaudited) (In thousands except per-share data; for periods ending February 28) Three Months Ended 2007 2006 Net sales $652,639 $609,701 Cost of goods sold 388,287 370,616 Gross profit 264,352 239,085 Gross profit margin 40.5% 39.2% Selling, general and administrative expense 190,637 181,628 Restructuring charges / (credits) 7,364 33,164 Operating income 66,351 24,293 Interest expense 13,853 12,863 Other income, net 1,843 1,147 Income from consolidated operations before income taxes 54,341 12,577 Income taxes 15,989 4,025 Net income from consolidated operations 38,352 8,552 Income from unconsolidated operations 6,573 7,280 Loss on sale of unconsolidated operation (290) - Minority interest (407) (1,444) Net income $44,228 $14,388 Earnings per common share - basic $0.34 $0.11 Earnings per common share - diluted $0.33 $0.11 Average shares outstanding - basic 130,344 132,611 Average shares outstanding - diluted 134,195 135,303 First Quarter Report McCormick & Company, Incorporated Consolidated Balance Sheet (Unaudited) (In thousands; for periods ending February 28) 2007 2006 Assets Current assets Cash and cash equivalents $38,582 $31,579 Receivables, net 379,789 345,353 Inventories 411,840 354,980 Prepaid expenses and other current assets 57,116 53,754 Total current assets 887,327 785,666 Property, plant and equipment, net 465,948 451,690 Goodwill and intangible assets, net 999,229 826,434 Prepaid allowances 49,123 46,865 Investments and other assets 160,267 170,271 Total assets $2,561,894 $2,280,926 Liabilities and shareholders' equity Current liabilities Short-term borrowings and current portion of long-term debt $337,023 $155,901 Trade accounts payable 218,193 170,068 Other accrued liabilities 340,525 354,135 Total current liabilities 895,741 680,104 Long-term debt 418,426 467,659 Other long-term liabilities 255,893 269,961 Total liabilities 1,570,060 1,417,724 Minority interest 4,030 30,944 Shareholders' equity Common stock 465,673 402,516 Retained earnings 381,951 388,402 Accumulated other comprehensive income 140,180 41,340 Total shareholders' equity 987,804 832,258 Total liabilities and shareholders' equity $2,561,894 $2,280,926 First Quarter Report McCormick & Company, Incorporated Consolidated Cash Flow Statement (Unaudited) (In thousands; for periods ending February 28) Three Months Ended 2007 2006 Cash flows from operating activities Net income $44,228 $14,388 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 19,882 18,085 Stock based compensation 4,630 10,150 Income from unconsolidated operations (6,573) (7,280) Changes in operating assets and liabilities (137,635) (45,830) Dividends from unconsolidated affiliates 377 - Net cash flow from operating activities (75,091) (10,487) Cash flows from investing activities Acquisition of business (3,041) - Capital expenditures (15,456) (15,450) Proceeds from sale of property, plant and equipment 50 132 Net cash flow from investing activities (18,447) (15,318) Cash flows from financing activities Short-term borrowings, net 105,152 23,011 Long-term debt borrowings - 198,558 Long-term debt repayments (139) (170,335) Proceeds from exercised stock options 16,694 6,793 Common stock acquired by purchase (10,967) (12,816) Dividends paid (26,055) (23,881) Net cash flow from financing activities 84,685 21,330 Effect of exchange rate changes on cash and cash equivalents (1,608) 5,791 Increase/(decrease) in cash and cash equivalents (10,461) 1,316 Cash and cash equivalents at beginning of period 49,043 30,263 Cash and cash equivalents at end of period $38,582 $31,579