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Spice giant's profit up 23%

THE BALTIMORE SUN

A focus on value-added products helped propel McCormick & Co. Inc. to record third-quarter profit, sales and earnings per share, the Sparks-based spice producer said yesterday, although its share price remains a major disappointment to company executives.

Net income for the three months that ended Aug. 31 rose 23 percent over the comparable quarter last year to $31 million on sales of $496 million, which was a 4 percent increase.

Earnings per share beat analysts' estimates by 2 cents, coming in at 45 cents - a 15 percent increase, excluding special charges, over the third quarter last year.

"We're quite pleased with the performance this quarter," said Francis A. Contino, executive vice president and chief financial officer. "We're pretty confident that the strong performance we experienced not only in the third quarter but the first three quarters will continue the rest of the year and that we will achieve all the goals that were previously stated."

McCormick officials have set three goals for fiscal 2000, which ends Nov. 30: sales increases of 4 percent to 6 percent, gross margin improvements of 70 to 100 basis points and earnings per share growth of 11 percent to 14 percent.

For the first nine months of the year, sales have increased 4 percent to $1.4 billion, gross margin is up 140 basis points to 35.1 percent and earnings per share excluding charges grew 26 percent to $1.16.

Net income for the first nine months rose 62 percent to $80 million.

Much of the improved numbers are due to McCormick's increased focus on value-added products in its industrial business, such as fruit flavorings that are used in yogurt or beverages. These have higher margins than simple bulk ingredients such as oregano or pepper.

McCormick also is focusing on high-margin items in its consumer side, such as the new Flavor Medleys line - liquid seasoning blends used to prepare meats - and its Spice Blends line that combines different spices in one bottle.

"Our focus has been on shifting the sales mix to the higher margin products," said Christopher J. Kurtzman, vice president and treasurer. "We are also reducing costs in the plants, reducing inventories and understanding our costs better."

The company said its dividend would again be 19 cents a share, payable to shareholders of record as of Sept. 29.

Earnings per share are expected to be diluted by 3 cents a share this year because of McCormick's $379 million purchase of Ducros, the world's second-largest spice maker behind McCormick itself.

Still, the company expects that per-share income for 2000 will increase 16 percent to 18 percent over last year. Contino said the company expects to earn between $1.96 and $1.99 per share this year; without Ducros, the numbers would have been $1.99 to $2.02.

Third-quarter sales were off by about $6 million because of unfavorable foreign currency conversions, Contino said. However, it also worked in the company's favor in the current fourth quarter - shaving about $15 million off the Ducros purchase price.

"It was another great quarter," said Mitchell B. Pinheiro, an analyst at Janney Montgomery Scott LLC. "Now we're coming into a situation where you have the dilution from Ducros and the increased exposure to the euro, which is weakening and will start to play a part in earnings performance."

Although the strong earnings report boosted McCormick's stock price $2.375 yesterday to $30.4525, it still is about where it was Jan. 1, 1993, when Charles P. "Buzz" McCormick Jr., the company founder's grandnephew, retired. The stock then was trading at just more than $30, with net income in 1992 of $95 million on sales of $1.47 billion.

Sales last year reached a record $2 billion with profits of $103 million. If McCormick's stock was trading at the same price-to-earnings ratio the company had in early 1993, it would now be worth about $50 a share.

"We hate it," Contino said of the stock price. "We continue to analyze the stock movement vs. the industry vs. stocks in general vs. technology stocks, and there's no doubt food stocks get no respect or attention."

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