HUNT VALLEY, MD. — A coronavirus outbreak in China that has led to dozens of deaths is creating challenges for McCormick & Co. The company, which has a manufacturing plant in Wuhan where the outbreak originated, is working to ensure the health and safety of its employees throughout China, said Lawrence E. Kurzius, president and chief executive officer, in a Jan. 28 earnings call to discuss 2019 financial results.
“All of our Wuhan facility activity, from sourcing of materials to distribution of manufactured products, is contained within the Chinese market, and at this point, it is too soon to quantify any business impact,” he said.
Hunt Valley-based McCormick has three plants in China: one in Shanghai, one in Guangzhou and one in Wuhan.
“Right now, all three of them are closed,” Mr. Kurzius said. “It’s the Chinese New Year holiday. They closed in the normal course of business actually before all the government restrictions were put in place. So this was a very orderly, (planned) shutdown for their regular holiday season.”
Under normal circumstances, the 10-day shutdown for the Chinese New Year would end Feb. 3, he said.
“And that’s actually the date that the government has put out for most of the country to reopen operations,” Mr. Kurzius said. “The city of Shanghai has put in a special restriction saying companies can’t open until Feb. 10, but other than that, there’s really no new news for us, and so far, it’s not a business interruption. I think it really remains to be seen how far this goes.
“Certainly, the reduction in people traveling, being able to go out to eat, being able to shop at the grocery stores is not a positive for our business. We can’t really quantify it right now.”
McCormick & Co. does not disclose its sales in China, but the country accounts for less than 10% of total company sales, Mr. Kurzius said.
The Centers for Disease Control and Prevention, Atlanta, on Jan. 27 recommended travelers avoid all non-essential travel to China because of the virus. The C.D.C. on Jan. 27 said five cases had been reported in the United States, and more than 1,000 cases had been reported in China.
In the fiscal year ended Nov. 30, 2019, McCormick & Co. posted net income of $702.7 million, or $5.30 per share on the common stock, which was down 25% from $933.4 million, or $7.10 per share, in the previous fiscal year. Per-share earnings in fiscal 2018 included a $2.26 net non-recurring benefit of the U.S. Tax Act. Adjusted earnings per share rose 8% to $5.35 per share in fiscal 2019 from $4.97 per share in fiscal 2018.
Fiscal-year sales rose 1% to $5,347.4 million from $5,302.8 million. An unfavorable impact of 2% came from currency.
“Our highlights for the year include, in our consumer segment, strong U.S. branded growth and double-digit e-commerce growth across all regions, and in our flavor solutions segment, we continue to win with customers, driving base business and new product growth with Europe, Middle East and Africa, our EMEA region, driving particularly strong performance,” Mr. Kurzius said.
In the company’s consumer segment, operating income, excluding special charges, rose 6% to $676.3 million in fiscal 2019 from $637.1 million in fiscal 2018. Net sales increased 0.7% to $3,269.8 million from $3,247 million.
“As we accelerate our condiment leadership, French’s mustard and Stubb’s barbecue continued to grow consumption and share,” Mr. Kurzius said. “Frank’s hot sauce had strong performance again this quarter (fourth quarter), and over the entire Frank’s portfolio, including frozen wings, seasoning blends and dry recipe mixes, we drove double-digit consumption growth as we are making further progress in our opportunities to expand this brand.”
In the company’s flavor solutions segment, operating income, excluding special charges, rose 3.2% to $302.2 million from $292.8 million. Net sales for the year were up 1.1% to $2,077.6 million, which compared with $2,055.8 million in the previous fiscal year. Flavor solutions sales in the Americas grew 3%, driven by new products and base business growth with continued momentum in snack seasonings and branded food service.
In the fourth quarter, net income of $213.4 million, or $1.60 per share on the common stock, was down 0.3% from $214 million, or $1.62 per share, in the previous year’s fourth quarter. Fourth-quarter sales rose 1% to $1,484.8 million from $1,467.9 million.
McCormick in 2020 expects earnings per share to be in a range of $5.15 to $5.25 and sales growth of 2% to 4%. Executives expect new products, brand marketing and expanded distribution to drive sales growth.
McCormick is updating its information system technology, previously communicating a range of $150 million to $200 million in expenses.
“We are now projecting the total cost of our E.R.P. (software) investment to range between $300 million and $350 million through the anticipated completion of our global roll-out in fiscal 2022, with an estimated split of 40% capital spending and 60% operating expense,” Mr. Kurzius said.