SPARKS, MD. — Acquisitions added this year contributed to higher sales for McCormick & Co. in the recent quarter. Executives said future transactions may expand the flavor company into new categories or geographies.
“The … acquisitions that we’re making and we’re continuing to target are those leading companies in markets where we have either a small presence or no presence,” said Alan Wilson, chairman and chief executive officer of McCormick, during an Oct. 1 earnings call with financial analysts. “We’re also targeting more flavor acquisitions for our industrial business. So, while we have done very few over the last 10 years, we see that as an opportunity to really build and grow our business.”
In August, McCormick acquired One World Foods, Inc., the Austin, Texas-based seller of Stubb’s premium barbecue sauces, for a cash payment of approximately $100 million. In addition to barbecue sauces, Stubb’s also offers marinades, rubs and skillet sauces. The addition of Stubb’s beefs up McCormick’s range of grilling products marketed under the Grill Mates, Lawry’s and McCormick brands.
|Alan Wilson, chairman and c.e.o. of McCormick|
“You've seen with the Stubb’s acquisition an example of that, where we’re moving into some areas that are more closely related to what we do, but not directly, so we have room to grow there,” Mr. Wilson said. “Stubb’s specifically puts us into more of a natural and interesting category. Our Stubb’s business doesn’t have high-fructose corn syrup, it’s gluten-free, and so it differentiates itself and is premium in the category.”
McCormick broadened its global footprint earlier this year with the purchase of Drogheria & Alimentari, a privately held spices and seasonings company based in Italy, for approximately €85 million ($97 million).
McCormick also expanded its industrial portfolio in March with the acquisition of Brand Aromatics, a privately held company based in Lakewood, N.J., for approximately $63 million in cash. Brand Aromatics supplies natural savory flavors, marinades and broth and stock concentrates to the packaged food industry.
“We look for areas more where flavor can matter,” Mr. Wilson said. “So rather than say yes or no to that particular opportunity, I would say we are looking to expand our industrial portfolio to better serve our customers, and it’s really geared around where flavor matters.”
For the third quarter ended Aug. 31, McCormick had net income of $97.6 million, equal to 76c per share on the common stock, down 21% from $122.9 million, or 95c per share, for the comparable quarter. The decline was due to a lower tax rate in the comparable quarter. The company also reported special charges for the quarter, including $10 million for a non-cash impairment of the Kohinoor brand name, $3 million for special charges in cost of goods sold and $2 million in charges related to streamlining actions.
Net sales increased 1.6% to $1,059.9 million from year-ago sales of $1,042.8 million. Excluding the unfavorable impact of foreign exchange rates, sales grew 7%, according to the company.
During the quarter, net sales for the company’s consumer business advanced 1% to $630.5 million. Sales in constant currency grew 7%, driven by increased volume and product mix. Operating income for the segment fell 18% to $99.9 million, which reflected high sales growth and cost savings that were more than offset by increased material costs, employee benefit expense and a $3 million decline in Kohinoor adjusted operating income from the prior-year period.
“We grew sales in the Americas, with our largest increases in recipe mixes, Grill Mates, Kitchen Basics and Zatarain’s in the U.S.,” said Gordon Stetz, executive vice-president and chief financial officer. “Product innovation and brand marketing support, particularly in digital … are driving these results. We are pleased with our progress, based on the latest consumption data.”
Net sales for McCormick’s industrial business rose 2% to $429.4 million. Sales in constant currency increased 8%, driven by higher volume and product mix and pricing actions taken in response to higher input costs. Operating income advanced 7% to $38.8 million, led by higher sales and cost savings that more than offset increases in material costs and employee benefit expense.
“In the third quarter, strong sales from our operation in Mexico were largely offset by continued weakness in U.S. sales to quick-service restaurant customers,” Mr. Stetz said.Based on strong year-to-date performance, McCormick projects full-year net sales in constant currency to grow 4% to 6%. The company said it is targeting the lower end of its previous guidance for earnings per share based on weakness in the Mexican peso and a decline in profit for the company’s Kohinoor business in India, where actions are under way to exit low-margin product lines. The company expects to achieve $95 million in cost savings, ahead of its initial goal and up from the record level set last year. McCormick plans to use a portion of the funds to increase brand marketing.