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McCormick & Co. boosts profits even as sales flatten in second quarter

McCormick & Co. boosted profits in the second quarter, beating Wall Street’s expectations, and said strong results position the spice maker for growth in the key second half of the year.

But the Hunt Valley-based spice and flavorings company slightly missed expectations for growth in sales, which remained flat compared with the second quarter of last year.

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McCormick reported income of $149.4 million, or $1.12 per share, for the three months that ended May 31, up from $123.3 million, or 93 cents per share, in the second quarter of 2018. On an adjusted basis, earnings rose 14% to $1.16 per share.

Wall Street analysts were expecting earnings of $1.08 per share on sales of $1.31 billion.

Sales were $1.3 billion, essentially the same as sales in the second quarter of last year. When adjusted for currency fluctuations, sales grew 3%, driven by both sales to consumers at stores and commercial sales to restaurants and food manufacturers in each of the global company’s three geographic regions.

“This was a mixed quarter,” John Boylan, a senior analyst covering consumer staples, said in a research note for Edward Jones. “McCormick did beat its earnings estimate versus consensus, but part of it was due to a lower than expected tax rate… Sales essentially met our expectations, and we did not see anything that changed our long-term outlook.”

He expects solid growth in the spice and seasoning category where McCormick has remained “one of the best consumer staples growth companies.”

“We also believe McCormick's earnings growth will benefit as McCormick continues to manage its costs well, in our view,” he said.

Shares of McCormick rose $5.24 to $155.87 each Thursday on the New York Stock Exchange.

The company said it is benefiting from growing consumer interest in healthy eating and sustainable practices.

“As we enter the second and most significant half of our year, we are confident the initiatives we have underway in 2019 position us to continue on our growth trajectory,” said Lawrence E. Kurzius, McCormick’s chairman, president and CEO, in a statement. “In 2019, we expect to deliver another strong year while continuing to make targeted investments and fuel our growth to build the McCormick of the future.”

Higher volume and new products spurred growth in both the consumer and commercial divisions, Kurzius said. Sales to stores benefited from expanded distribution and improvements in marketing and merchandising, with the Asia Pacific and Americas regions leading growth, and the brand seeing increased demand for products such as Zatarain’s frozen entrees and “Wrap It” recipe mixes in the United Kingdom and Frank’s Red Hot sauce in the United States.

In the Asia Pacific region, momentum grew for sales of Frank’s hot sauce and French’s mustard, Kurzius told analysts on a conference call, and “although growth in the region has been partially impacted by recent macroeconomic pressures in China, our fundamentals across the region remain strong.”

On the commercial side, Kurzius said, “we are continuing to win with our customers and drive sales growth through out new products, expanded distribution and their promotional activities.”

Growth was especially strong in a region covering Europe, the Middle East and Africa, he said.

Sales were dampened by an unfavorable impact from currency fluctuations, McCormick said, with the consumer division declining 1% and the commercial side up by 1%. Growth also was tempered by a delayed start to the grilling season due to a later Easter and an exceptionally wet spring, which impacted sales of Grill Mates seasoning blends, Kurzius said.

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McCormick also reaffirmed its sales outlook and increased its earnings per share outlook for fiscal year 2019. The company expects sales to grow by 1% to 3%, driven by introduction of new products, brand marketing and expanded distribution. McCormick increased its projected earnings for the year to be in the range of $5.09 to $5.19 per share. When adjusted for the impact of special charges in 2019, the company projects earnings in the range of $5.20 to $5.30 per share, up from previous expectations of $5.17 to $5.27.

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