A price war among spice makers resulted in its first major casualties in Maryland yesterday as McCormick & Co. Inc. announced it would close one of its Hunt Valley spice plants and eliminate about 150 of the company's 2,000 jobs in the state.
The move, part of a planned 600 job cuts worldwide announced by the Sparks-based company yesterday, comes as competition the spice business has prevented McCormick from meeting its profit goals. McCormick's stock price has also languished, losing 20 percent of its value since the beginning of the year.
The layoffs, which will reduce the company's work force by 7 percent within two years, are McCormick's third since 1986.
H. Eugene Blattman, president and chief executive officer of the world's largest spice company, said McCormick is being pressured to boost its profits, and therefore its stock price, in part to forestall any hostile takeover bid.
"In order for the company to stay a healthy and independent business with headquarters here in Baltimore, it is essential that we be able to grow earnings," Mr. Blattman said.
McCormick announced last month that its profits for the third quarter were 8.5 percent higher than in the same period last year. In the past, McCormick executives have promised investors the company would try to increase profits by 15 percent a year.
Since then, as inflation abated, the company has cut its predictions to a "double-digit rate over time," Mr. Blattman said. But now, he added, "we're having some difficulty in achieving that."
Mr. Blattman said 105-year-old McCormick, which sells nearly half the spices in the United States, has faced intensifying competition from Durkee French Foods, the nation's No. 2 spice company.
To keep McCormick spice racks in grocery stores, McCormick has had to reduce prices and pay more "slotting fees," which are payments to grocers for the use of their shelves, he said. As a result of the lower profit margins, Mr. Blattman said, investors have pushed the company's stock price down.
Mr. Blattman conceded it would be difficult for anyone to take the company over against the wishes of McCormick family members and employees, since they control almost all the company's voting shares. And in 1988, McCormick adopted several "poison pill" provisions that would, essentially, require a buyer to purchase 91 percent of both the voting and nonvoting shares.
Investors and stock analysts praised McCormick's restructuring yesterday.
Alan Bird, president of the Chicago-based Wayne Hummer Growth Fund, which owns 100,000 McCormick shares, says he recently bought additional shares because McCormick has been steady performer.
"Their earnings have slowed," he said, but added that "they dominate the spice business. . . . We view it as a niche player who executes well. The restructuring will probably enhance earnings."
While no other company has announced an intention to take over McCormick, other large food companies would likely have an appetite for the spice and flavorings company, some Wall Street analysts said.
Caroline Levy, who follows McCormick stock for the Lehman Bros. brokerage in New York, said food companies are facing so much pressure from consumers to keep their prices low that many companies are looking to improve profits by consolidating with competitors or suppliers.
She said yesterday that McCormick's stock, which closed up 50 cents, at $20.25 yesterday, is not low enough to set off a takeover effort.
But, she said, "I would have to think a company like CPC International Inc. [owner of brands like Knorr soups and Hellmann's mayonnaise] would find a company like McCormick interesting," because McCormick produces many of CPC's supplies and makes a popular Mexican mayonnaise that
competes with Hellmann's.
As a part of the restructuring, the company will take a $66 million charge, reorganize its British operations and sell a Virginia onion ring subsidiary that has lost money for the last several years, Mr. Blattman said.
The company will also close a Hayward, Calif., spice factory, laying off about 75 people, and move those spice-packaging operations to a plant in Salinas, Calif.
After the Hunt Valley plant is closed, its spice-packaging operations will be moved to other Hunt Valley plants, Mr. Blattman said.
In addition, McCormick will offer early-retirement incentives to about 700 employees over the age of 50, about half of whom are in Maryland.
Mr. Blattman said the increased pension payments are designed to prompt older workers to retire "in order to create positions for the people who are displaced" by the layoffs.
The voluntary retirement offer will run through the end of the year, and the layoffs will begin in February of next year, the company said.
* Cut 600 jobs, or 7 percent of work force.
* Close Food Service's spice production operation in Hunt Valley.
* Close Flavor Group's production facility in Hayward, Calif.
* Realign some operations in the United Kingdom.
* Sell Golden West Foods subsidiary in Bedford, Va.
* Reduce earnings before taxes by up to $66 million.