Marketing initiatives and manufacturing efficiencies helped bring McCormick & Co. Inc. record sales and earnings per share in the third quarter, the Sparks-based spice giant said yesterday.
McCormick's earnings per share of 35 cents beat analysts' estimates by 2 cents, according to Zacks Investment Research. Excluding a one-time charge of $3 million, earnings per share were 39 cents.
The charge is related to a June announcement that the company is firing 300 workers and closing a plant in the United Kingdom. McCormick also took a $14.6 million charge in the second quarter.
Sales increased 7 percent in the three months that ended Aug. 31 to $477 million. Net income rose 18 percent to $25.36 million.
Net sales in the first nine months were up 7 percent to $1.4 billion and net income was down 8 percent to $49 million.
In January, the company set three goals for the year: Increase sales 5 percent to 7 percent, increase the gross margin by 100 basis points -- or 1 percent -- and raise earnings per share by 12 percent to 15 percent.
"For the first three quarters, sales have grown 7 percent, despite some unfavorable foreign exchanges," said Fran Contino, chief financial officer and executive vice president. "The gross margin is up 120 basis points, and year-to-date earnings per share are up 26 percent over 1998, excluding charges."
With the charges, earnings per share are down 7 percent for the first nine months of the year.
A major reason for the increased sales is the company's "Quest" program in which McCormick tries to persuade grocery stores to lower prices on about 30 of the company's top products, even though McCormick is not lowering wholesale prices to the stores. The theory is that the stores will make up the difference in increased volume.
"We have favorable results that we can document to retailers, and they are pleased with the success," Contino said. By the end of the year, he said, 75 percent of the grocery stores that sell McCormick products are expected to be participating in the program.
McCormick increased its spice sales 8.8 percent in the 12-week period ending Aug. 15, though the category grew only 1.8 percent, Contino said. Its dry seasoning mixes sales grew 5.1 percent in that period while the category declined 2.4 percent.
"The biggest thing [in the quarterly report] is the gross margin improvement, which was a lot more than anticipated and remarkable for a third quarter," said analyst R. Bentley Offutt of Offutt Securities in Hunt Valley.
McCormick's gross profit margin increased from 32.9 percent in last year's third quarter to 34.4 percent this year.
Offutt also was impressed with the company's ability to move inventory and pay down debt. Even with improved sales, inventory on hand declined 2.7 percent to $271 million. Interest expense was down 14 percent to $8 million. Short-term borrowing dropped 16 percent to $213 million, while long-term debt was $242 million, down 8 percent.
Company shares gained $1.25 yesterday to close at $33.25.