McCormick profits down nearly 13% in fourth quarter

Net income fell nearly 13 percent at McCormick & Co. Inc. during the fourth quarter, sending its shares sliding more than 6 percent Wednesday.

The Sparks-based spice maker said it experienced sluggish consumer sales and took a loss from a voluntary pension settlement during the quarter as its stock dropped $4.32 a share to close at $65.30.

McCormick reported profit of $129.9 million for the three months that ended Nov. 30, down from $148.5 million in the fourth quarter of fiscal year 2012. Earnings per share slid to 98 cents from $1.11 a year earlier.

The results included the impact of a $20 million charge to fund a previously announced payout program for former employees with deferred vested pension benefits.

Excluding the impact of the settlement, the spice and flavorings company earned $159.1 million, or $1.20 per share. Those results, an 8 percent increase over fourth-quarter profit in 2012, just topped analysts' projections of $1.19 per share.

Sales in the fourth quarter of 2013 rose 2 percent, to nearly $1.2 billion.

Consumer sales of spices and seasonings were weaker than expected in the United States amid growing competition as McCormick has given up some market share. Its U.S. sales increased in the mid-single digits but fell short of growth of retail sales for spices in general, the company said.

"Clearly, consumer demand for flavor remains strong," as consumers look for flavorings to replace sugars and fat, said McCormick CEO Alan D. Wilson during a conference call with analysts Wednesday morning.

The company plans to step up its branded marketing to consumers, continue introducing new products such as gluten-free gravy mixes and relaunch gourmet flavorings products to help differentiate the brand's quality and materials sourcing in consumers' minds, Wilson said.

McCormick has been pinched by the expansion of private-label spices in both low-cost and premium price categories and gains by smaller competitors, Wilson told analysts. The company said retail customers tried to get ahead of a price increase by shifting $30 million worth of purchases from the fourth quarter to the third quarter.

"The domestic business historically has been the backbone of the business," said R. Bentley Offutt, an analyst with Offutt Securities in Cockeysville. Now it's facing "more aggressive competition on grocery store shelves from some regional spice companies and some brands that have reappeared. ... Despite increased advertising and promotion and close relationships with grocery stores, it has impacted their revenue growth."

But the company has seen sales and profit grow in other key markets during the past fiscal year and has expanded its presence in China with the $141 million acquisition of bouillon maker Wuhan Asia Pacific Condiments.

China, where Wuhan generated $30 million in sales, was among several international markets where fourth-quarter sales and profits in the consumer business grew at or above the company's targets.

The industrial business — sales to commercial customers — grew 3 percent, the company said.

For the full year, sales rose 3 percent to $4.1 billion, with earnings of $2.91 per share.

McCormick expects sales to grow from 3 percent to 5 percent in fiscal 2014, with earnings projected in a $3.22 per share to $3.29 per share range, including the impact of a jump in the 2014 tax rate.

"We are excited about our growth prospects as consumers around the world explore new flavors and drive demand," Wilson said.

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