McCormick heats up investment behind U.S. brands

by Monica Watrous
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SPARKS, MD. — Heightened competition in the spices and seasonings category soured fiscal sales for McCormick & Co.

While the company’s performance in international markets remains relatively strong, private label and smaller competitors have snagged away share in the United States.

“To address this competitive activity, we’ve put in place the following actions to regain our momentum,” said Alan Wilson, chairman, president and chief executive officer, during a Jan. 29 earnings call with analysts.

First, McCormick plans to significantly increase its brand marketing support, particularly during holidays and grilling occasions when the company’s brands index higher than its competition.

“We want to use our leading share of voice to differentiate and drive growth of our core products, including the use of digital marketing, where we’re achieving our highest (returns on investment),” Mr. Wilson said.

Second, the company is accelerating innovation, with plans to introduce to U.S. consumers “winning concepts” in global markets, such as gluten-free gravy mixes that are performing well in Canada. Other launches planned in the region during the first half of the year include value-priced Recipe Inspirations seasoning collections and grinders, new Grill Mate seasonings, new varieties of Zatarain’s rice mixes and Lawry’s marinades and extra-rich vanilla extract.

Third, McCormick is identifying ways to improve its marketplace agility.

“We want to more aggressively gain share by rapidly addressing competitive challenges and identifying and pursuing growth opportunities,” Mr. Wilson said.

To help execute the strategies, Lawrence Kurzius, president of the company’s global consumer business, has been tapped to work directly with the U.S. consumer business team.

“During his time in this business in 2005 and 2006, we increased sales and profit and market share with initiatives behind innovation and brand marketing, as well as new gravity-feed merchandising equipment,” Mr. Wilson said. “With his direct leadership, the dedicated efforts of our U.S. consumer business team and increased investment in brand marketing and innovation, I look forward to reporting to you on our progress in the upcoming quarters.”

For the year ended Nov. 30, 2013, net income slipped 4.6% to $389 million, equal to $2.94 per share on the common stock, down from $407.8 million, or $3.07 per share, during the previous year.

Net sales for the year totaled $4,123.4 million, down 2.7% from $4,014.2 million in fiscal 2012.

Fourth-quarter income declined nearly 13% to $129.9 million, or 99c per share, from $148.5 million, or $1.12 per share, during the prior-year period.

Net sales for the quarter increased 2.1% to $1,170.1 million from $1,145.8 million during the same quarter of the previous year.

Operating income for the company’s consumer business during the quarter dropped to $146.1 million from $177.2 million last year. Segment sales in the fourth quarter totaled $764.9 million, up 2.8% from $744.1 million, benefitting from the Wuhan Asia Pacific Condiments (WAPC) acquisition and pricing that offset an unfavorable shift in sales in the Americas region. The company grew sales and profits in its international markets, led by strong results in China.

Operating income for McCormick’s industrial business during the fourth quarter rose to $28 million from $23 million during the same prior-year period. Net sales in the segment increased to $405.2 million from $401.7 million last year, reflecting a decline in demand driven by weaker restaurant traffic in the Americas, which offset growth in snack seasonings and other flavors sold to food manufacturers in the region.

“While we expect weak demand from quick-service restaurants in the U.S. to extend into the first part of 2014, we are encouraged by our new product pipeline,” Mr. Wilson said. “Across our entire industrial business, we expect a better performance in 2014 than in 2013.”

He added: “We are much, much better off when our customers are innovating and introducing new products, or when they’re driving core products that we supply. So, where we win is by winning the innovation. That’s the part that we can control. By and large, a lot of the things with that customer base is not in our control.”

In fiscal 2014, McCormick expects a 3% to 5% growth in sales and 6% to 8% growth in operating income from $551 million of adjusted operating income in 2013. The company projects earnings per share in the range of $3.22 to $3.29, accounting for the unfavorable impact of a significant tax rate increase.

To drive growth in the coming year, the company has planned increased innovation and brand marketing for the consumer business, new product development and international expansion on the industrial side, and a generation of cash flow from its cost savings program.

“Consumer demand is on the rise in pursuit of new flavors, ethnic cuisines or spices and herbs as a replacement for sugar, salt and fat,” Mr. Wilson said. “These are just some of the trends driving this growth. As a global leader in flavor, McCormick is well-positioned to meet this demand.”
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