McCormick & Co., which announced its purchase of the makers of Stubb's barbecue sauces Wednesday, has spice plants and other operations in Hunt Valley.
McCormick & Co., which announced its purchase of the makers of Stubb's barbecue sauces Wednesday, has spice plants and other operations in Hunt Valley. (Steve Ruark / BALTIMORE SUN)

Profit at McCormick & Co. Inc. fell slightly in the second quarter as special charges cut into operating income and sales were hurt by unfavorable currency exchange rates, the Sparks-based spice maker reported Wednesday.

McCormick's shares fell 1.7 percent to close at $79.57 on the New York Stock Exchange, possibly reflecting concern over earning expectations for the second half of the year and a continuing loss of market share to private labels and smaller competitors at U.S. retailers.

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"That's the biggest concern, the loss of market share in the consumer business in the U.S.," from a company that had long been accustomed to gaining on its rivals, said Brian Yarbrough, a consumer staples analyst for Edward Jones. "The price gap might be too high versus other players and private labels and they're losing share. At some point they may have to take prices lower, [which could] impact profitability."

McCormick reported that it earned $84.3 million in the three months ended May 31, down slightly from $84.5 million in the same quarter last year. Per-share earnings ticked up to 65 cents from 64 cents.

The recent quarter's earnings would have been higher except for $19 million in special charges related to the company's continuing efficiency initiatives, which also whacked 10 cents off earnings per share.

Sales slipped 1 percent to $1.02 billion in the quarter, down from $1.03 billion a year earlier, depressed by the U.S. dollar's strength relative to currencies in other markets where McCormick sells its products.

Without the effect of currency exchange rates, the company noted, sales would have grown 5 percent, in line with Wall Street expectations.

"Both our consumer and industrial segments delivered higher sales in constant currency across each region," said Alan D. Wilson, McCormick's chairman and CEO, in the company's announcement. "We are driving this growth by developing innovative products, building brand equity and strengthening our customer relationships."

Constant currency is a financial measure designed to eliminate the effect of exchange-rate fluctuations for comparison purposes.

McCormick said its North American consumer business is improving as sales grew 1 percent, thanks to a grilling marketing campaign and market-share gains in recipe mixes and Zatarain's products.

"We are very focused on regaining and driving share in core items," Wilson told analysts during a Wednesday conference call. "We're doing a lot of the right things, but it will take time."

He pointed to especially strong sales growth in the company's top emerging markets of China, Mexico, Eastern Europe and Russia. And in the Europe, Middle East and Africa region, sales to quick-service restaurants have been strong, he said. However, consumer sales in that region fell 15 percent because of exchange-rate shifts.

Acquisitions also are driving growth, Wilson said. Last month, the company announced its third for the year with the $100 million addition of Stubb's, a Texas brand of barbecue sauces. In February, McCormick expanded its reach in Europe with the purchase of Italian spice maker Drogheria & Alimentari for $97 million. The company acquired Brand Aromatics, a New Jersey-based maker of marinades and broths, in March for about $63 million.

McCormick reaffimed its sales growth forecast of 4 percent to 6 percent for the year and raised its outlook for earnings per share by 3 cents to $3.18 to $3.25 because of a lower-than-expected tax rate.

The company said the continuing cost-cutting program is expected to lead to at least $85 million in cost savings this year.

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