Advertisement

McCormick & Co. profits climb in fourth quarter

McCormick & Co. Inc. saw its profit climb 14 percent in the fourth quarter as consumers in China helped its sales growth, even as the spice maker continued to lose market share among consumers in the United States.

The Hunt Valley company said income rose to $148 million, or $1.14 per share, for the three months that ended Nov. 30, compared with $129.9 million, or 98 cents per share, for the same period a year earlier.

Advertisement

Sales rose 2 percent to $1.17 billion, below company projections amid increasing competition, McCormick reported Wednesday. The company, which reached annual sales of $4.2 billion last fiscal year, said it expects sales growth of between 4 percent and 6 percent in fiscal 2015 and is projecting earnings for the year in a range of $3.41 to $3.48 per share.

McCormick's shares fell $1.06 to close at $71.86 each amid a broader market decline.

Alan D. Wilson, McCormick's chairman and CEO, described the company's 2014 results as solid in a difficult environment.

"Our on-trend categories are growing in markets around the world with increasing consumer demand for flavor," Wilson said.

But in the United States, "our main challenge has been fragmentation in the spice and seasonings category, value-priced products, ethnic brands and premium and organic items," Wilson said during a conference call with analysts.

Earnings beat Wall Street expectations thanks to a lower tax rate, cost savings and a mix of higher-margin products, but growing competition among spice makers on U.S. supermarket shelves is cause for concern, analysts said.

"On the surface, the numbers were fine, but I continue to be concerned," said Brian Yarbrough, consumer staples analyst for Edward Jones, noting that McCormick, while still the category leader in the United States, has been losing domestic market share for three years straight.

It's possible that it's too soon to see the effects of new product launches and increased marketing, but, Yarbrough wondered, "Is there a pricing gap problem here, and are they going to have to lower prices?"

"They have to give the consumer a reason why they will buy McCormick spices over the value brands," he said. "For a lot of consumers, the perception is spices are spices. Pepper is pepper, and cumin is cumin. They have a difficult task ahead of them. … The consumer continues to be very value-oriented."

Credit Suisse food analyst Robert Moskow questioned whether projections of 4 percent to 6 percent sales gains for this year were realistic given recent increases in the 2 percent range.

McCormick "needs big market share gains to achieve this plan, and it has to come from the U.S.," which is the most profitable part of McCormick's business, Moskow said during the call.

The company said it is handling increased competition in the U.S. consumer business by opening new product development facilities and launching new products, including top sellers such as Grill Mates burger seasonings, gluten-free recipe mixes and skillet sauces. This year, the company plans to relaunch its entire gourmet spice line in the U.S. and start offering flavored sea salt grinders and additional dessert items, Wilson said.

McCormick also has boosted its investment in marketing the brand and is working more closely with retailers that sell McCormick products to increase sales and profit.

"What we have to do is get core growth in U.S. spices and seasonings," Wilson told analysts. "We've got a lot of work to do in the U.S. business. We're encouraged by the second half."

Advertisement

Sales growth was especially strong last year in emerging foreign markets, which now make up 17 percent of the company's sales, Wilson said.

"In markets around the world, we are making solid progress with product innovation, and in 2014, new products launched in the past three years accounted for 8 percent of sales," Wilson said. "We participate in flavor categories that are well-aligned with the shift in consumer demand toward fresh ingredients, healthy meals and great flavor. We believe that these latest eating trends are here to stay."

Wilson noted on the conference call that members of the millennial generation have a positive view of the McCormick brand. Those consumers in their 20s and early 30s, who enjoy cooking, trying new dishes and posting meal photos and recipes on social media, are seen as a highly coveted market segment for McCormick.

On the industrial side, which includes sales of flavorings to food manufacturers and restaurants, the company said it saw weaker demand from quick-service restaurants in China. The company had success, however, in providing food manufactures with new flavorings for items such as snack chips and snack bars.

Advertisement
Advertisement