McCormick products
McCormick's acquisition of RB Foods should have a more pronounced effect on the company's fourth quarter earnings.

SPARKS, MD. – Having completed its acquisition of Reckitt Benckiser Group’s food division (RB Foods), McCormick & Co. has altered its financial outlook for the 2017 fiscal year. McCormick now expects to increase sales year-on-year by 9% to 10%, which compares to a previous estimate of 4% to 6%.

While RB Foods, including its French’s and Frank’s RedHot brands, affected only two weeks of the third quarter ended Aug. 31, the new acquisition should have a more pronounced effect in the fourth quarter, especially over the holidays.

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

“We were pleased with RB Foods' approximately two-week contribution to our third-quarter results,” said Lawrence E. Kurzius, chairman, chief executive officer and president of McCormick, in a Sept. 28 earnings call. “Like McCormick's base, the RB Foods business is a seasonal one with sales being weighted heavier and operating profits even more so in the fourth quarter. Based on the plans the RB Foods team already had in place, we expect a strong holiday season.”

In the past, 30% of RB Foods’ fiscal-year sales have occurred in the fourth quarter, said Michael R. Smith, chief financial officer and executive vice-president for McCormick.

“A lot of the holiday items have a higher margin, which is good for us,” Mr. Smith said. “So there is a nice impact in the fourth quarter for us.”

McCormick breakfast items
McCormick recently launched a spate of new products, including breakfast items.

Mr. Smith said the new expectation for increased fiscal-year sales implies a fourth-quarter sales increase of 19% to 23%.

Sparks-based McCormick & Co. now forecasts earnings per share of $3.69 to $3.73 in fiscal 2017, which would compare to $3.69 in 2016. The previous forecast for fiscal 2017 was $3.94 to $4.02. Forecast adjusted earnings per share of $4.20 to $4.24 would be an increase of 11% to 12% from $3.78 in 2016. The previous forecast for fiscal 2017 was $4.05 to $4.13.

McCormick on Aug. 17 announced the completion of the RB Foods acquisition, which had a purchase price of about $4.2 billion. In the Sept. 28 call, Mr. Kurzius said it was the largest deal in McCormick’s history.

“McCormick now has leading positions in categories that consumers use most when flavoring fresh foods,” he said. “Our one-stop shop for condiment, spice and seasoning needs provides our customers and our consumers with an even more diverse and complete flavor product offering. This transaction reinforces our focus on growth, reflects McCormick's commitment to making every meal and moment better, and drives significant shareholder value.”

Frank's RedHot sauce, McCormick
McCormick announced the completion of the RB Foods acquisition on Aug. 17.

McCormick in the third quarter registered sales of $1,185.2 million, which was up 9% from $1,091 million in the previous year’s third quarter. Net income of $108.2 million, or 86 cents per share on the common stock, was down 15% from $127.7 million, or $1.01 per share. The RB Foods transaction and integration expenses drove the decrease in third-quarter earnings. Adjusted net income was $142.5 million, or $1.12 per diluted share, which was up 9% from $131.1 million, or $1.00 per diluted share, in the previous year’s third quarter.

Operating income of $169 million compared to $168 million in the previous year’s third quarter. The company recognized $30 million of transaction and integration expenses in operating income related to the RB Foods acquisition.

The consumer segment of McCormick & Co. had net sales of $696.8 million in the third quarter, up 5% from $662 million. In the Americas, RB Foods contributed 3% of the sales increase. Operating income of $117.2 million was down 6% from $124.9 million in the previous year’s third quarter.

McCormick all-purpose seasonings
McCormick in the third quarter registered sales of $1,185.2 million.

Sales in the industrial segment grew 14% to $488.4 million from $429 million. Sales increased across all regions, including the incremental impact of Giotti and RB Foods. McCormick & Co. in December of 2016 completed the acquisition of Enrico Giotti SpA, an Italian flavor manufacturer. In the Americas in the third quarter, incremental sales from RB Foods contributed 4% to sales growth in the industrial segment. The segment’s operating income in the third quarter rose 20% to $51.5 million from $42.9 million.

Over the nine months ended Aug. 31, McCormick & Co. had net income of $301.7 million, or $2.40 per share, which was down 4% from $314.9 million, or $2.48 per share, in the same time period of 2016. Nine-month sales improved 5% to $3,343.2 million from $3,184.5 million.

McCormick remains on track to achieve $105 million in cost-savings in 2017 led by the company’s Comprehensive Continuous Improvement program.