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, chairman, CEO and president of McCormick|
“We were pleased with RB Foods' approximately two-week contribution to our third-quarter results,” said Lawrence E. Kurzius, chairman, CEO 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 percent of RB Foods’ fiscal-year sales have occurred in the fourth quarter, said Michael R. Smith, CFO and executive vice president for McCormick.
“A lot of the holiday items have a higher margin, which is good for us,” Smith said. “So there is a nice impact in the fourth quarter for us.”
Sparks, Maryland-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 percent to 12 percent 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, 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.”
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 percent from $662 million. In the Americas, RB Foods contributed 3 percent of the sales increase. Operating income of $117.2 million was down 6 percent from $124.9 million in the previous year’s third quarter.
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 percent from $314.9 million, or $2.48 per share, in the same time period of 2016. Nine-month sales improved 5 percent 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.