With its share price up nearly 70 percent over the past two years and its annual profit hitting an all-time high, McCormick & Co. Inc. said yesterday that it will split its stock for the first time in a decade.
The 2-for-1 split will go into effect April 8 for shares held at the close of business on March 25. The announcement was made after the markets closed.
"This demonstrates management's confidence in the company's prospects and outlook for the future," said Robert J. Lawless, chairman, president and chief executive of the Sparks-based spice giant. "It's a confidence signal to the external world."
He said the company tends to split its stock when the price gets to be around $45 - as was the case with the last split in January 1992.
Lawless said that, beyond signaling management's faith in the company, the split will also allow McCormick's workers to buy a greater number of shares through their employee stock purchase plan.
McCormick was already the world's largest spice producer when it bought Paris' Ducros - Europe's No. 1 spice maker - in September 2000 for $379 million. The purchase helped push McCormick to record profit and revenue in both 2000 and 2001.
The company's shares have risen from $27.50 two years ago to more than $46. During that time, the Standard & Poor's 500 index fell nearly 20 percent. McCormick shares rose 6 cents yesterday to $46.58.
In fiscal 2001, McCormick's profit rose 6.6 percent to $146.6 million on sales of $2.4 billion, an 11.7 percent increase over 2000. Earnings per share were $2.09, up from $1.98 the prior year.
In reporting those record earnings, McCormick said it would lay off about 275 workers - mainly outside the United States - to "streamline operations."
When a stock splits 2-for-1, the value of the stock is cut by half but the number of shares doubles. An investor who had five shares worth $10 each would, after the split, have 10 shares worth $5 each.
"Typically, the public believes, rightly or wrongly, that when a stock split occurs, the stock tends to go up in price," said Patrick Buttarazzi, vice president of investments at Prudential Securities.
The main theory behind that view is that investors will be more drawn to stock they can buy for, say, $20 than for $40.
"The market moves on supply and demand," he said, "and if it is perceived that splits are a good thing, then demand goes up."
Splits also add liquidity to the stock. McCormick now has just over 61 million shares of stock outstanding; after the split it will have more than 120 million.
"Investors care about that if they've got a certain number of shares to dispose of - they can do it more rapidly," said Douglas G. Ober, chairman and chief executive of the Baltimore investment company Adams Express Co.
However, a negative aspect is that if investors are charged fees based on the number of shares they trade, that cost can increase after a split.
"There is," Ober said, "some downside to it."