McCormick & Co. Inc. saw its second-quarter profit jump 44 percent, thanks largely to a $27 million tax gain from the restructuring of a joint venture.
The Sparks-based spice maker reported yesterday that it earned $61.6 million, or 46 cents a share, during the three months that ended May 31, compared with $42.8 million, or 31 cents a share, a year earlier.
Excluding the tax gain and other restructuring efforts that contributed 14 cents a share to earnings, the company earned 32 cents a share, beating the consensus forecast of analysts polled by Thomson Financial by 2 cents.
Second-quarter sales rose 2 percent to $639.9 million, compared with $628.6 million for the same period in 2005.
"We're very pleased with this first-half performance," McCormick Chief Executive Officer Robert J. Lawless told analysts during a conference call.
The tax gain came after McCormick swapped its 50 percent stake in Signature Brands LLC for a 49 percent stake in Dessert Products International S.A.S.
Lawless said the company's restructuring plan is ahead of schedule. Thanks to the tax gain, restructuring costs will range from $110 million to $130 million, compared with the initial estimate of between $130 million and $150 million. The restructuring is expected to save the company $50 million a year.
As a result, Lawless said, the company had raised its earnings guidance for 2006 to between $1.41 and $1.44 a share, from its previous forecast of $1.21 to $1.24.
McCormick's restructuring plan will reduce its worldwide work force by up to 1,000 people by 2008 through buyouts, early retirement incentives and a consolidation of plants. In addition, the company is eliminating hundreds of underperforming products and increasing retail prices by 4 percent.
The company also is terminating agreements with a quarter of its less profitable industrial customers to focus on its bigger ones, such as McDonald's. In the past six months, the company has severed ties with 275 of its 1,000 customers, Lawless said.
Analyst George Askew with Stifel Nicolaus & Co. dubbed it a "strategy with legs" in his report issued yesterday after the conference call and maintained a "buy" rating on the company.
On Tuesday, McCormick completed its $97 million cash purchase of Union City, Calif.-based Epicurean International Inc., which imports Asian ready-to-make meals under the Thai Kitchen and Simply Asia brands. It has annual sales of $50 million.
Lawless said yesterday that McCormick will use its wide distribution system to better promote and position the product on U.S. supermarket shelves.
Lawless said grocers and customers are responding favorably to McCormick's new automatic-feed dispensing system being tested in certain stores, including the Wegmans supermarket near McCormick's spice mill and packaging plant in Hunt Valley. It will be rolled out in 15,000 stores by 2008, he said.
As for new products, the company is adding roasting rubs and gourmet marinades among others this year to its product mix.
McCormick has introduced new labeling that is more consistent and features "attractive" food photography, Lawless said. During the fourth quarter, McCormick bottles will feature a new flip-top cap.
McCormick stock gained 88 cents yesterday to close at $33.55 a share.