McCormick raises outlook after strong third quarter

by Keith Nunes
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McCormick organic bay leaves
McCormick's shift to on-trend product attributes such as organic propelled the company to a record third quarter.

SPARKS, MD. — McCormick & Co.’s shift to product attributes perceived to be on trend, such as non-G.M.O. and organic, combined with effective productivity programs, propelled the company to a record third quarter and prompted management to raise the company’s outlook for the year.

Lawrence Kurzius, McCormick
Lawrence Kurzius, president and c.e.o. of McCormick

“These results demonstrate the effective execution of our strategy, designed to drive both top-line sales and significant productivity improvements,” said Lawrence Kurzius, president and chief executive officer, on Sept. 30 in a conference call with financial analysts to discuss the quarterly results. “With our year-to-date financial results and momentum heading into the fourth quarter, we’re well-positioned to deliver record results in 2016.”

For the quarter ended Aug. 31, the company recorded net income of $127.7 million, equal to $1.01 per share on the common stock, an increase compared with the same period of the previous year when the company earned $97.6 million, or 76c per share.

Sales for the quarter rose slightly to $1,091 million from $1,059.9 million the year before.

McCormick non-G.M.O. products
McCormick also introduced several non-G.M.O. products.

“On a constant currency basis, we grew Consumer segment sales 7%, and increased adjusted operating income 12%,” Mr. Kurzius said. “As those who follow McCormick know, we’re driving sales with increases in our base business, new products, and acquisitions. All three of these drivers contributed to Consumer segment sales increase this quarter.”

In the Americas, the company’s McCormick and Lawry’s brands had strong quarters. China was another major driver, with double-digit growth and category share gains in both herbs and spices, according to the company.

McCormick’s Industrial business also performed well during the quarter, generating a 23% increase in operating income.

Lawry's marinades, seasonings and spices, McCormick
In the Americas, McCormick's Lawry’s brand had a strong quarter.

“This strong performance was driven by sales of branded food service products in the U.S., where we’ve gained share with a leading customer,” said Mike Smith, chief financial officer. “Also in the U.S., we’ve been winning business with several new restaurant customers, although demand from some of the quick-service restaurants remains weak.”

The strong third-quarter results prompted the company to raise its full-year earnings guidance to $3.75 to $3.79 from $3.68 to $3.75.

Mr. Kurzius said he sees trends aligning at retail that bode well for McCormick & Co.’s future.

McCormick food service spices
McCormick's branded food service products have performed well.

“There does seem to be a shift away from more prepared foods, and a move towards — closer to fresh, more scratch type foods," he said. "I think that bodes well for the perimeter of the store, and for companies … that have businesses that involve scratch cooking. And, again, I think that’s a positive for our category.

“There’s also a trend toward greater interest in health and wellness and healthier eating. And, again, I think that’s supportive of the herb and spice category, particularly in the U.S. where herbs and spices are in the dietary guidelines for Americans, really for the first time ever as a strategy for reducing things like added salt, added sugar in foods.”

Gourmet Garden herbs, McCormick
McCormick plans to drive sales with acquisitions, such as its purchase of Gourmet Garden in April.

Heading into fiscal 2017, Mr. Kurzius said the company is facing several headwinds, including unfavorable currency rates and the rising cost of raw materials, specifically garlic and vanilla.

“When we provide our material cost inflation outlook for 2017 in our January earnings call, it is likely to be above 2016’s low single-digit rate,” he said. “As we’ve done in the past, we expect to manage this increase through pricing actions and cost savings. While we’ve already begun to take pricing actions, we anticipate some near-term slowdown in our rate of margin improvement.”

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