Cost savings a 'fuel for growth' at McCormick
July 5, 2016
by Jeff Gelski
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McCormick's net income in the second quarter was up 11 percent from the same time last year.
SPARKS, MD. — A cost-savings strategy has McCormick & Co. reporting increases in net income, which in turn has the company investing more in brand marketing and considering future acquisitions.
The company posted net income of $93.8 million, equal to 74 cents per share on the common stock, in the second quarter ended May 31, which was up 11 percent from $84.3 million, or 66 cents per share, in the previous year’s second quarter. Sales grew 4 percent to $1,063.3 million from $1,024.1 million.
McCormick has a four-year goal of achieving $400 million in cost savings by 2019. The company expects cost savings of $100 million to $110 million this fiscal year.
|Lawrence Kurzius, president and CEO of McCormick
“This is our fuel for growth as demonstrated by our second-quarter investment in brand marketing, which we increased 16 percent, or $10 million, from the year-ago period,” said Lawrence Kurzius, president and CEO, in a June 30 earnings call. “As a further investment, we funded $5 million of increased incremental spending in the second quarter in support of our acquisition activity, a key element of our growth strategy.”
He said about half the increase in brand marketing came in the United States.
“This included marketing support for our Pure Tastes Better campaign, the launch of our herb grinders, Hispanic advertising and digital marketing for Grill Mates as we headed into Memorial Day and peak grilling seasoning,” Kurzius said.
Acquisitions added 3 percent to the second-quarter sales increase, which included the incremental impact of Drogheria & Alimentari and One World Foods Inc. (the producer of Stubb’s barbecue sauces), both purchased in 2015, and Gourmet Garden, purchased in 2016.
McCormick's acquisitions of One World Foods, Drogheria & Alimentari and Gourmet Garden added 3 percent to the second-quarter sales increase.
“Going forward, we have a robust pipeline of acquisition opportunities,” Kurzius said.
During the call, Kurzius was asked if McCormick remained on target to label 70 percent of McCormick brand spices herbs and extracts as non-GMO by the end of the year and to have 80 percent of its McCormick gourmet brand sales come from organic items by the end of the year.
“First of all, on the conversion of our gourmet to organic, that is continuing on pace,” Kurzius said. “We set a goal of having 80 percent of our gourmet sales organic by the end of the year. We still expect to achieve that.
“I will say the conversion of organic has been more challenging for us than perhaps we anticipated. The supply chain and the kind of quality controls that we insist on in terms of product supply has been harder for us to develop. It’s just a less mature supply chain out there, and we’ve gotten such a lift from the conversion to organic that the volume has been higher than we initially anticipated, which has slowed the transition just because it’s that much more pressure on an immature supply chain.”
McCormick is on target to label 70 percent of its spices, herbs and extracts as non-GMO by the end of the year.
He said the non-GMO conversion is running ahead of pace.
“For the non-GMO conversion, that really was more about us calling out what we already do,” Kurzius said.
For the six months ended May 31, McCormick had net income of $187.2 million, or $1.47 per share, which was up 21 percent from $154.8 million, or $1.21 per share, in the same time period of the previous year. Six-month sales rose 3 percent to $2,093.5 million from $2,034.5 million.
McCormick adjusted its projected 2016 earnings per share to a range of $3.63 to $3.70, which reflected an increase in estimated special charges. The previous projection was $3.65 to $3.72. Sales are expected to grow 1 percent to 3 percent for the full fiscal year.