After a nearly four-year federal investigation into its pricing practices, McCormick & Co. said yesterday that it signed a tentative settlement agreement with the Federal Trade Commission aimed at avoiding a formal lawsuit.
The investigation began in 1996 with a focus on exclusive agreements between the Sparks-based spice giant and retailers. It then shifted to potential violations of the Robinson-Patman Act, a Depression-era law that requires manufacturers to offer all retailers the same deals. Volume discounts and advertising supplements are allowed, but they must be offered to everyone equally.
McCormick officials said the FTC studied more than 2,000 contracts and found three that it determined violated the act. Officials at the FTC would not confirm that number.
Under the agreement, which still requires approval from the full commission, FTC officials will do periodic audits of McCormick's contracts for the next 10 years. There will be no monetary fine and McCormick is admitting no wrongdoing.
Because the full commission has not voted on the settlement, the FTC would not make any comment, including how much the investigation cost the agency.
Robert J. Lawless, McCormick's chairman, president and chief executive officer, said yesterday that he expects a formal vote in the next several weeks.
"It's great to have this behind us, and now we can move on," he said.
Lawless said the company is not changing its practices, other than to voluntarily add more detail to its contracts to make them easier to review, and that the settlement will not affect McCormick's competitiveness.
"I think some shareholders are breathing a sigh of relief," said John McMilllin, an analyst at Prudential Securities in New York. "No one likes to have stigma or a mark against a company. This was a small cloud over the company, but it's kind of cleared now."
Just because the cloud was lifted doesn't mean the stock will shine.
Food stocks in general are not gaining the attention of investors who have become enamored of technology and Internet-related companies. In general, the food sector's share value is down nearly 25 percent.
For example, Keebler Foods Co.; Seaboard Corp., a poultry and pork producer; and Earthgrains Co., a baked goods company, all have sales similar to those of McCormick, and all have seen their share price drop 30 percent to 40 percent over the past year.
The price of McCormick's shares was more than $34 in October and has since fallen by more than 30 percent. Yesterday, McCormick's shares gained $1.25 to close at $26.
McCormick's depressed share price comes despite news last month that the company had record earnings per share for the fourth quarter and the entire year.
Net income for fiscal 1999, which ended Nov. 30, was $103 million on sales of $2.2 billion. Earnings per share, excluding special charges, were up 18 percent to $1.69.
"Food stocks have been out of favor," said R. Bentley Offutt, president of Offutt Securities Inc. in Hunt Valley, who rates the stock a buy.
He said he isn't concerned about the FTC settlement and doesn't think it will affect the company's performance.
"If anything it's a slap on the wrist. The fact is, nothing was done that was unusual to the industry," Offutt said.
"McCormick in the future will be careful in how they write their new contracts and business will go on as usual," he said.