McCormick executives expect strong 2017

by Keith Nunes
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 McCormick
McCormick innovation, acquisitions and cost savings have made the company optimistic. 
 

SPARKS, Md. — The completion of a successful fiscal 2016 has executives with McCormick & Co. optimistic about 2017. Contributing to the optimism are expectations of strong performance from innovation, acquisitions and cost savings.

Net income for the year ended Nov. 30, 2016, was $472.3 million, equal to $3.69 per share on the common stock, and an improvement when compared with fiscal 2015 when net income totaled $449.5 million, or $3.11 per share.

Sales for the year fell slightly to $1,658.3 million from $1,661.1 million the previous year.

Lawrence
Lawrence Kurzius, president and CEO of McCormick

“On a constant currency basis, we met each of our long-term growth objectives for sales, operating income and earnings per share, and achieved the top end of the range for sales and operating income,” said Lawrence Kurzius, president and CEO, during a Jan. 25 conference call with earnings analysts. “We exceeded $100 million in annual cost savings and delivered our fifth consecutive year of record cash flow and we have great momentum heading into 2017.”

Kurzius added that he expects the company to increase sales at a rate ahead of management’s long term 4 percent to 6 percent constant currency objective. The rate is expected to be driven by the base business and innovation, including certain pricing actions related to such raw materials as vanilla and garlic.

“In addition, we have nearly a full year of sales from our acquisition of Giotti and an incremental impact from Gourmet Garden in the first part of the year,” he said.

 Gourmet
McCormick acquired Gourmet Garden last April.
 

Challenging management’s optimistic outlook is the loss of share the company experienced during the fourth quarter.

“For the fourth quarter, the category growth rate for spices and seasonings remained strong at 5 percent,” Kurzius said. “McCormick brand spices and seasonings grew 2 percent; however, this was a growth rate in measured channels.

“We had very strong fourth-quarter sales growth in certain unmeasured channels, including club, e-commerce and Hispanic retail chains. We estimate that these unmeasured channels added another 2 percentage points to McCormick’s retail sales growth for spices and seasonings.”

 McCormick
Pricing actions related to garlic are expected to increase sales.
 

The 1 percent loss in market share between the combined measured and unmeasured channels caught the attention of securities analysts participating in the conference call.

“… we believe that the measured scan data for the period understates our performance,” Kurzius said in response to an analyst’s question about the share decline. “I’ll also comment, as we said in our third-quarter call, that we were putting vanilla on allocation for the holiday season. And so during the holiday season, which is also the peak baking season and peak demand period for vanilla, in advance of the price increase that we were taking on vanilla, we had that product on allocation.

“So actually, we feel that our underlying business strength is even stronger than not only what is showing through the scan sales, but also in our reported sales.”

 McCormick
McCormick put vanilla on allocation during the holiday season.
 

During the fourth quarter, McCormick’s net income totaled $157.4 million, or $1.25 per share, up from $149.2 million, or $1.17 per share, in the same period a year ago.

Sales for the quarter were $1,227 million, an increase compared with the previous year when sales totaled $1,201.9 million. 

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