Sales rise in second quarter after McCormick acquisitions

Consumer demand for healthier foods helped boost sales and profits for McCormick & Co. Inc. during the second quarter, the Sparks-based spice maker said Thursday.

Sales rose 4 percent to $1.06 billion in the three months that ended May 31, compared with $1.02 billion in the second quarter of 2015.


The company's income increased to $93.8 million, or 73 cents per share, up from $84.3 million, or 65 cents per share, in the same period a year earlier.

Excluding the impact of special charges related to a reorganization effort and discontinuing some items in India, McCormick's adjusted earnings were 75 cents per share, which topped the consensus estimate of analysts polled by Zacks Investment Research by a penny.


Shares of McCormick surged nearly 4 percent to close at $106.67 per share on Thursday.

"Underpinning our growth is the rise in consumer demand for healthy flavor and high quality products, and we are meeting this demand with an expanding portfolio of on-trend products," said Lawrence E. Kurzius, McCormick's president and CEO, in an announcement.

Sales rose as McCormick introduced new products, boosted advertising, expanded distribution and acquired companies this year and last. Acquisitions included Italian spice maker Drogheria & Alimentari, barbecue sauce maker Stubbs, both last year, and, in April, Gourmet Garden, an Australian maker of chilled herbs.

Joseph Agnese, an equity analyst at S&P Global Market Intelligence, boosted his rating on McCormick to a "buy" from "hold" based on the quarterly results and increased the 12-month stock price target by $13 to $114 per share.

"We see earnings growth and valuation benefiting from consolidation opportunities, expanded product distribution, productivity improvements and cost-cutting efforts," Agnese said.

McCormick spent $10 million more on brand marketing compared with the 2015's second quarter and had a $5 million increase in acquisition-related costs, including a failed bid for English company Premier Foods, but said higher sales and cost savings helped to offset those expenses.

The brand improved its second-quarter profit margin by lowering costs and boosting productivity, Kurzius said. McCormick expects to save $100 million to $110 million this fiscal year, toward a goal of reaching $400 million in cost savings by 2019.

"These cost savings are driving margin improvement and are our fuel for growth, providing the funds for higher brand marketing, product development and acquisitions," Kurzius said.


Brittany Weissman, an equity analyst at Edward Jones, noted that McCormick's increased cost savings is helping profit margins, while new product launches and work with U.S. retailers is paying off by stemming recent losses of market share in the U.S. consumer business. The company has been working with retailers to improve product displays, placement and pricing in stores.

"Overall it was a pretty good quarter," said Weissman. "The underlying consumer business was pretty strong. They are continuing to improve the market share."

Sales to consumers increased in the U.S., Europe, the Middle East and Africa, much of that driven by the recent acquisitions. Sales decreased in Asia as McCormick discontinued sales of low-margin product line in India.

The company said it now expects a greater than previously anticipated increase in special charges for the current fiscal year. Excluding the impact of that increase, McCormick reaffirmed its expected growth rate for sales, adjusted operating income and adjusted earnings per share.

The company expects to reach the higher end of its projected growth range for sales and earnings per share for the fiscal year. Sales are expected to grow between 1 percent and 3 percent this year.