McCormick's fiscal Q4 net income up 14.8% to US$133.6M, net sales up 6% to US$979.5M; results boosted by new products, expanded distribution and brand marketing, offset by higher raw and packaging material costs
January 26, 2011
McCormick & Company, Incorporated (NYSE:MKC - News), a global leader in flavor, today reported record results for fiscal year 2010.
* In the fourth quarter, sales grew 6% and earnings per share reached $0.99. Adjusted earnings per share rose 9%, excluding items affecting comparability.
* Fiscal year 2010 earnings per share were $2.75. Adjusted earnings per share rose 13%, excluding items affecting comparability.
* Solid earnings growth is expected in fiscal year 2011 driven by higher sales and further progress with CCI, the Company’s global initiative to improve productivity and reduce costs.
Alan D. Wilson, Chairman, President & CEO, commented, “In an economic environment that remains difficult in many of our major markets, we delivered strong financial performance that met or exceeded each of our financial goals for 2010. Our growth initiatives and operational achievements drove increases in both sales and profit. Interest in flavor continues to grow and consumers and customers rely on McCormick for great-tasting, high quality products. That’s the essence of our business - we bring passion to flavor.
"In 2010 we grew sales with new product innovation and expanded distribution, as well as a $21 million increase in brand marketing support. This investment in our brands was fueled by our margin improvement. To achieve this higher margin, we improved productivity and reduced costs throughout our operations with CCI, our Comprehensive Continuous Improvement program. Cost savings reached $54 million in 2010, which was 35% ahead of our initial target for the year. Margins were also positively impacted by our progress toward a more favorable mix of products in our industrial business. We not only improved gross profit margin for the total Company, but reached an 8% operating income margin for our industrial business. I want to recognize the contributions of all McCormick employees around the world for their role in achieving our 2010 results.
"Toward the end of a record 2010, McCormick investors shared in the success of the Company with a 25th consecutive annual dividend increase. With this increase, we were pleased to be added by Standard & Poor’s to their S&P 500 Dividend Aristocrats Index that includes fewer than 50 companies. As we look ahead to 2011 we are excited about our line-up of new products, brand marketing plans, distribution expansion opportunities and further progress with CCI, and expect a year of solid sales and earnings growth."
Fiscal Year 2010 Results
Earnings per share for the fiscal year rose to $2.75 compared to $2.27 in 2009. In 2010 the reversal of a significant tax accrual increased earnings per share $0.10, and in 2009 restructuring charges lowered earnings per share $0.08. Excluding the impact of these items, adjusted earnings per share in 2010 was $2.65, an increase of $0.30 from adjusted earnings per share of $2.35 in 2009. This was a 13% increase which exceeded the Company’s initial projection of 6% - 8% earnings growth on a comparable basis.
Adjusted operating income, which excludes restructuring charges recorded in 2009, grew 6%, adding $0.14 to earnings per share. Sales rose 5% and in local currency grew 3%, which was within the Company’s targeted increase in local currency of 2% - 4%. A $21 million increase in brand marketing support, new product introductions and expanded distribution each contributed to this sales growth. Gross profit margin ended the year at 42.5% compared to 41.6% in 2009. This result exceeded expectations due in large part to CCI cost savings which reached $54 million in 2010, a result that was well ahead of the initial target of $35-$40 million.
As indicated, the Company’s 2010 tax rate was affected by the reversal of a significant tax accrual which added $0.10 to earnings per share. Another $0.12 was added to earnings per share from a lower tax rate primarily due to increased foreign tax credits in the U.S. that resulted from the repatriation of cash from foreign subsidiaries. Higher income from unconsolidated operations added $0.07 to earnings per share with an excellent financial performance from the Company’s joint venture in Mexico. In total, McCormick’s joint ventures grew sales 12%, operating income 33% and net income 56%.
The Company achieved $388 million in cash flow from operations in 2010. Following improvements in its cash conversion cycle in both 2008 and 2009, the Company removed three days in 2010, primarily from improved collection of receivables. Cash was used to reduce $114 million of debt, as well as to fund dividend payments and capital expenditures. In the second half of the year, the Company resumed its share repurchase program and used $83 million for this purpose.
Fourth Quarter Results for Fiscal Year 2010
Earnings per share for the fourth quarter of 2010 rose to $0.99 compared to $0.87 in the fourth quarter of 2009, an increase of $0.12. Excluding the $0.04 impact of restructuring charges recorded in 2009, earnings per share rose $0.08 from 2009. The primarily reason for this increase was a favorable tax rate which was primarily due to increased foreign tax credits in the U.S. that resulted from the repatriation of cash from foreign subsidiaries.
The Company achieved strong fourth quarter sales growth in both its consumer and industrial businesses as a result of new products, brand marketing support and expanded distribution. Profit from higher sales and CCI cost savings, was largely offset in the fourth quarter by a $7 million increase in brand marketing support and an increase in raw and packaging material costs. The cost of a number of the spices and herbs, as well as packaging materials, rose sharply toward the end of 2010, and the Company has taken pricing actions in response to these increases.
McCormick & Company, Incorporated is a global leader in flavor, with the manufacturing, marketing and distribution of spices, seasonings, specialty foods and flavorings to the entire food industry – retail outlets, food manufacturers and food service businesses.
Industry Intelligence Editor’s Note: In an omitted table, the company reported Q4 net income of US$133.6 million. For the same period a year ago, the company reported Q4 net income of US$116.4 million.
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