McCormick sees early signs of turnaround
March 26, 2014
by Monica Watrous
SPARKS, MD. — Recent efforts to regain positioning in spices and seasonings are beginning to bear fruit for McCormick & Co., which had squandered share to private label and smaller competitors.
“We are seeing our share gap closing with our core spices, we are seeing growth and actually share gains in our recipe mixes, and we are seeing a flattening of share from some of those fragmented competitors that we talked about,” said Alan Wilson, chairman, president and chief executive officer, during a March 25 earnings call with analysts. “Private label continues to gain, but the regional and smaller competitors are flattening out a bit.”
To compete with private label, the company has two strategies: pricing and promoting items at key times of the year, such as holidays and grilling occasions, and building brand equity by driving product innovation.
“I think the spice and seasonings business is still going to take some time,” Mr. Wilson said. “We are encouraged by what we’re seeing in our core products early on, and that is what we are supporting with advertising. We are also driving the category and gaining share in our recipe mix business. So we have got early signs of traction, we are not calling the turnaround yet, but we are encouraged by what we are seeing.”
Turnaround efforts on the U.S. consumer business have included accelerated innovation, increased marketing support and improved agility in the marketplace. McCormick tapped Lawrence Kurzius, president of the company’s global consumer business, to work directly with the U.S. consumer business team in executing the strategies.
“I don’t want to get overoptimistic because we know it is going to take some time, but we are doing exactly what we said we were going to do,” Mr. Wilson said. “We are out selling our message with retailers. That is a customer-by-customer and in some cases, region-by-region approach that is going to take some time. And frankly is never done because, when we present something that works for us, the competitor is in there presenting something else as well. So that is going to be a longer slide, but we immediately changed our focus into building consumer equity, and we are starting to see some of the benefits of that.”
Net income for the first quarter ended Feb. 28 was $82.5 million, equal to 63c per share on the common stock, up 8.6% from $76 million, or 57c per share, in the year-ago period. Net sales advanced 6.3% to $993.4 million from $934.4 million in the same three-month period a year before.
Operating income for the company’s consumer business increased 7.5% to $94.3 million from $87.7 million last year, and segment sales rose 8% to $615.3 million from $569.8 million, on the strength of strong performance in international markets that offset a 1% decline in sales in the Americas region.
For the industrial business, operating income climbed 25% to $30.3 million from $24.3 million in the prior-year period, while net sales increased 3.7% to $378.1 million from $364.6 million. Higher volume and product mix, with product innovation and distribution gains, drove growth in the segment.
In the United States, growth in sales to food and beverage companies, including customer wins for the seasoning and flavoring of snack chips, crackers, breakfast food and yogurt, offset weak demand from quick-service restaurants. But McCormick said it is benefitting from McDonald’s Corp.’s recently announced departure from using Heinz ketchup in some of its international markets.
“(McDonald’s) is a significant customer for us, and we supply them around the world, so there has been some realignment in the supply chain there, and we have been growing our business with that customer in Europe and China,” Mr. Wilson said.
Looking ahead, McCormick expects 3% to 5% sales growth in local currency and projected 2014 earnings per share of $3.22 to $3.29.