McCormick & Co. Inc.'s sales grew 2 percent but profit slipped 15 percent in the first three months of its fiscal year — better-than-expected results that sent shares up Tuesday for the Sparks-based flavoring and spice company.
The company, which is contining to expand in China and preparing to launch a line of gourmet spices in the United States, reported net income Tuesday of $70.5 million for the quarter that ended Feb. 28, down from $82.5 million a year earlier. Earnings per share slipped to 55 cents from 62 cents.
But earnings would have climbed 13 percent to 70 cents per share, helped by a lower tax rate, without the impact of 15 cents per share in special charges, McCormick said. That beat Wall Street analysts' expectations of 64 cents.
Sales also rose to $1.01 billion during the quarter, up from $993 million in the comparable period a year earlier. Without the impact of unfavorable currency rates, sales would have been up 6 percent.
Such strong sales growth — an improvement over recent years — indicated the company may be turning a corner in its battle to regain market share lost to private label brands in the U.S., one analyst said.
"The revenue growth … is some of the best we've seen," said Brian Yarbrough, a consumer analyst with Edward Jones. "They've been losing share," he said. "They've had a lackluster few years" compared with the company's typically strong past performances.
The sales boost, combined with cost cutting, "should drive earnings in the back half of the year," Yarbrough said.
McCormick's stock surged on the news, topping $77.50 a share Tuesday morning, before closing up $1.92 a share at $75.12 in New York Stock Exchange trading.
The quarterly results showed the company is making progress with its sales strategies, especially faced with competitive conditions in many markets, McCormick CEO Alan D. Wilson said in the announcement.
"Our profit result has us off to a strong start in 2015," Wilson said. "In the U.S. consumer business, we are introducing new products, including a relaunch of our entire gourmet line, and building brand equity, with plans underway for a strong grilling campaign" to kick off before Memorial Day.
Yarbrough said some of the sales improvements came as a result of McCormick's larger investment in brand advertising. But other efforts also are paying off, he said, as the brand has worked with individual retailers to maintain shelf space and offer displays that better present the brand's higher priced products as a good value.
Its consumer business in China grew at a double digit rate, with the 18 percent gain driven by brand building, geographic expansion and improvements in in-store selling, Wilson said.
In the industrial business segment, McCormick benefitted from stronger demand for snack seasonings and growth of its quick-service restaurant customers in Europe, Middle East and Africa.
During a morning conference call with anlayst, Wilson highlighted product innovations, such as last year's rollout of skillet sauces and an upcoming relaunch of the gourmet spice line to include greater variety and "flavor seal" caps.
The company also has seen improved retail placement for flavored sea salts and added varieties of Old Bay, Lawry's marinades, gluten-free recipe mixes and Zatarain's rice mixes.
"In the U.S, we continue to gain share with recipe mixes, while in spices and seasonings, we still see robust category growth but still have some work to do in this market," Wilson said. "Consumer demand for flavorings is increasing and our categories have strong growth rates" thanks to the poplarity of healthier eating, fresh ingredieints and ethnic cuisine.
Besides adding and reinventing products, the company plans to continue to grow through acquisitions, Wilson said. The company recently agreed to acquire Drogheria & Alimentari, an Italian spice maker, and Brand Aromatics, a supplier of flavors, marinades, broth and stock concentrates to the packaged food industry.
"We're actively pursuing a strong pipeline of other acquisitions opportunities," the CEO said.